A Pecking Order Theory of Sovereign Default

Mark Wright, Christoph Trebesch and Matthias Schlegl

No 994, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: Do sovereign debtors discriminate between debtors in the event of a default? If so, how will this affect the character of future defaults? And, what does this mean for policymakers? In this paper we exploit a unique database of arrears accumulation by debtor country and creditor to characterize the level of creditor discrimination during a sovereign default. We find, as expected, that the IMF and bondholders are the beneficiaries of discrimination. Unexpectedly, we find that trade creditors are most discriminated against. We then present a theoretical framework within which these findings can be rationalized and use it to assess how policymakers can influence a debtors decision to default.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:994

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