Sovereign Debt and Grace Periods

Yasin Mimir (), Yasin Kürşat Önder () and Jose Villegas ()
Additional contact information
Jose Villegas: -

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: We document that grace periods are widespread, characterizing 83% of the external sovereign debt stock. This prevalence is largely driven by concessional (official) loans, which account for 73% of the stock and universally feature grace periods. To examine their macroeconomic role, we develop a quantitative model showing that grace periods enhance household welfare by reducing default risk and improving market completeness, yet also increase long-run dependence on non-contingent debt and raise sovereign spreads. We empirically validate these mechanisms using local projection estimates and conduct policy counterfactuals on shortened grace periods, voluntary debt exchanges, and the stigma premium associated with concessional finance.

Keywords: Sovereign debt; default; concessional loans; grace period; stigma premium (search for similar items in EconPapers)
JEL-codes: E44 F34 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2026-02
References: Add references at CitEc
Citations:

Downloads: (external link)
http://wps-feb.ugent.be/Papers/wp_26_1137.pdf (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:rug:rugwps:26/1137

Access Statistics for this paper

More papers in Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration Contact information at EDIRC.
Bibliographic data for series maintained by Nathalie Verhaeghe ().