Sovereign risk after sovereign restructuring. Private and official default

Silvia Marchesi and Tania Masi

No 423, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This paper studies the relationship between sovereign debt default and sovereign credit risk by taking into account the depth of a debt restructuring and by distinguishing between commercial and official debt. We take different proxies for credit risk measures, such as rating agencies and institutional investorsÂ’ratings as well as bond yield spreads (EMBIG). By controlling for both the occurrence and the magnitude of debt defaults, we Â…nd that commercial and official defaults are associated to different outcomes. Private defaults seem to involve some reputational costs up to seven years since the last agreement, while official defaulters are not affected (or may even benefit) by the restructuring episodes. Using the Synthetic Control Method, we fiÂ…nd further evidence for the heterogeneity of the economic impact of debt restructurings, confiÂ…rming that official and private defaults may have different costs and then induce selective defaults.

Keywords: Sovereign defaults; Credit Rating Agencies; Institutional Investors; Synthetic control method (search for similar items in EconPapers)
JEL-codes: F34 G15 G24 H63 (search for similar items in EconPapers)
Pages: 79
Date: 2019-11, Revised 2019-11
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:423

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