Observing bailout expectations during a total eclipse of the sun

Oscar Bernal, Kim Oosterlinck and Ariane Szafarz

No 08-015.RS, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: The literature has not reached a consensus yet regarding the existence of sovereign creditor moral hazard. Exploiting an exceptional historical example, this paper proposes an original method to address this issue. As the corona which are observable only during a total eclipse of the sun, market-specific prices of repudiated bonds are observable only when extreme conditions (a war, in this instance) segment the markets. Such events are very rare but insightful as they allow for isolating pure country-specific bailout expectations. The paper shows that bailouts do create creditor moral hazard. Based on an impulse response analysis, the econometric results further emphasize the influence of bailout expectations in sovereign bonds valuation.

Keywords: bailout; bonds; moral hazard; repudiation; sovereign debt; Soviet; Russia. (search for similar items in EconPapers)
JEL-codes: F33 F34 N24 (search for similar items in EconPapers)
Pages: 26 p.
Date: 2008
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (18)

Published by: Université Libre de Bruxelles, Solvay Business School, Centre Emile Bernheim (CEB)

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Related works:
Journal Article: Observing bailout expectations during a total eclipse of the sun (2010)
Working Paper: Observing bailout expectations during a total eclipse of the sun (2009)
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