Economics at your fingertips  

Serial default and debt renegotiation

Tamon Asonuma ()

MPRA Paper from University Library of Munich, Germany

Abstract: Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same debt-to-GDP ratio. This paper explains this stylized fact within a dynamic stochastic general equilibrium framework by explicitly modeling renegotiations between a defaulting country and its creditors. The quantitative analysis of the model reveals that the equilibrium probability of default for a given debt-to-GDP level is weakly increasing with the number of past defaults, consistent with empirical observations. The equilibrium of the model also accords with an additional observed fact: a country for which default terms require less than a 100 percent recovery rate tends to pay a higher rate of return (relative to a risk-free rate) on subsequently issued debt than do defaulting countries that agree to a full recovery rate.

Keywords: Sovereign Default; Serial default; Debt renegotiation; Past credit history; Recovery rates; Interest spreads (search for similar items in EconPapers)
JEL-codes: E43 F32 F34 G12 (search for similar items in EconPapers)
Date: 2012-04-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link) original version (application/pdf)

Related works:
Working Paper: Serial Default and Debt Renegotiation (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

Page updated 2021-05-31
Handle: RePEc:pra:mprapa:55139