Essays On Sovereign Default And The Link With The Domestic Economy

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Essays on Sovereign Default and the Link with the Domestic Economy

Author : Eugenia Andreasen
Publisher :
ISBN 13 :
Total Pages : 61 pages
Book Rating : 4.:/5 (851 download)

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Book Synopsis Essays on Sovereign Default and the Link with the Domestic Economy by : Eugenia Andreasen

Download or read book Essays on Sovereign Default and the Link with the Domestic Economy written by Eugenia Andreasen and published by . This book was released on 2012 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis studies the causes and consequences of sovereign defaults focusing on non traditional links between sovereign default and the domestic economy: the impact of sovereign defaults on the external financial conditions for the private sector; and the ex-ante implications of the redistributive effects of default and repayment on the political support that the government requires to implement either of these decisions. In the first chapter of my thesis I analyze the worsening of the external financial conditions for the private sector that follows sovereign defaults. To explore the issue I develop a signaling model in which sovereign defaults reveal negative information to foreign lenders regarding the institutional quality in the country. Foreign lenders care about institutional quality because it affects the expected repayment of loans. Therefore, if foreign lenders receive negative information on the institutional quality from the sovereign default they worsen the financial conditions they offer to local firms triggering a sharp reduction in credit and investment (updating effect). The model can rationalize the worsened financial conditions in international capital markets for the private sector observed after default episodes. In the second chapter, a joint work with Guido Sandleris and Alejandro Van der Ghote, we analyze how the presence of political constraints affects sovereign governmentsborrowing and default decisions. We do so in a standard DSGE model with endogenous default risk where we introduce two novel features: heterogeneous agents in the domestic private sector and a requirement that the government obtains some of their support to implement the fiscal program needed to repay the debt. In this framework, we demonstrate that sovereign default can also arise due to insufficient political support and we explore the implications of different income distribution, political systems and tax systems over the repayment decision.

Essays on Sovereign Debt and Default

Author : Jarrod E. Hunt
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (893 download)

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Book Synopsis Essays on Sovereign Debt and Default by : Jarrod E. Hunt

Download or read book Essays on Sovereign Debt and Default written by Jarrod E. Hunt and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is comprised of two essays focused on the central theme of sovereign default. In the first essay, I detail a method to improve forecasting models of sovereign default by evaluating the impact of a country's composition of debt. For my second essay, I assess the long-horizon impact of a sovereign default episode on a country's economic volatility. A country's external debt relative to gross domestic product is positively associated with the probability of being in default. Aggregate measures of external debt are commonly used for this type of risk analysis. However, based on the details of each loan, there are numerous subsets of external debt. Using a dataset of 32 developing countries from 1971-2010, I find that short-term debt, commercial bank loans, and concessional debt owed to other countries are the categories responsible for the positive relationship between the aggregate and the probability of being in default. In addition to isolating the categories driving the relationship between total external debt and sovereign default, I distinguish between the associated impact of each debt category on the probability of entering default and the probability of prolonging default. This is an important distinction as some subsets, such as bonds and multilateral concessional debt, are only related to the probability of entering default, while others, such as the use of IMF credit, are only significant when a country is already in default. Additionally, I find that short-term debt, commercial bank loans, and concessional bilateral debt positively affect both the probability of entering default as well as the probability of remaining in default. Focusing on the composition of external debt provides a more complete picture of the effect of debt on the probability of default, allowing for more precise forecasts of default probabilities. In my second chapter, I evaluate the impact of sovereign default on the volatility of gross domestic product, a relationship related to two strands of literature: one focused on the impact of sovereign default on output and another that evaluates the impact of economic volatility on growth in output. In addition to bridging the gap between the existing strands of literature, the dataset and techniques employed in this analysis offer advantages over those currently in use. First, the use of the Beveridge-Nelson decomposition addresses issues encountered by other, common trend-cycle decomposition methods. Second, this dataset, which spans 1870-2008, includes more sovereign default episodes per country, allowing for a richer region-specific evaluation. Using a dataset of 7 South American countries, I find that the volatility of output decreases following a sovereign default episode. Taking advantage of the considerable longitudinal dimension, I am also able to assess the impact of volatility on economic growth by looking at different sub-periods. I show evidence that from 1870-1959, economic volatility is positively related to growth while from 1960-2008, a commonly used time period in the literature, there is no effect. These findings suggest that volatility's influence on economic growth may change over time.

Essays on Sovereign Debt and Monetary Economics

Author : Diego J. Perez
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (91 download)

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Book Synopsis Essays on Sovereign Debt and Monetary Economics by : Diego J. Perez

Download or read book Essays on Sovereign Debt and Monetary Economics written by Diego J. Perez and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays on Sovereign Debt and Monetary Economics. The first chapter, entitled 'Sovereign Debt, Domestic Banks and the Provision of Public Liquidity' studies the effect of a sovereign default in the domestic economy and its implications for the government's incentives to repay its debt. I explore two mechanisms through which a sovereign default can disrupt the domestic economy via its banking system. First, a sovereign default creates a negative balance-sheet effect on banks, which reduces their ability to raise funds and prevents the flow of resources to productive investments. Second, default undermines internal liquidity as banks replace government securities with less productive investments. I quantify the model using Argentinean data and find that these two mechanisms can generate a deep and persistent fall in output post-default, which accounts for the government's commitment necessary to explain observed levels of external public debt. The balance-sheet effect is more important because it generates a larger output cost of default and a stronger ex-ante commitment for the government. Post-default bailouts of the banking system, although desirable ex-post, are welfare reducing ex-ante since they weaken government's commitment. Imposing a minimum public debt requirement on banks is welfare improving as it enhances commitment by increasing the output cost of default. The second chapter, entitled 'Sovereign Debt Maturity Structure Under Asymmetric Information' studies the optimal choice of sovereign debt maturity when investors are unaware of the government's willingness to repay. Under a pooling equilibrium there is a wedge between the borrower's true default risk and the default risk priced in debt, and the size of this wedge differs with the maturity of debt. Long-term debt becomes less attractive for safe borrowers since it pools more default risk that is not inherent to them. In response, safe borrowers issue low levels of debt with a shorter maturity profile -relative to the optimal choice under perfect information- and risky borrowers mimic the behavior of safe borrowers to preclude the market from identifying their type. In times of financial distress, the default risk wedge of long-term debt relative to short-term debt increases which makes borrowers reduce the amount of debt issuance and shorten its maturity profile. I present empirical evidence on sovereign debt maturity choices and sovereign spreads for a panel of emerging economies that is consistent with the model's implications. The third chapter, entitled 'Price Setting Under Uncertainty About Inflation', is based on a working paper coauthored with Andres Drenik. This chapter provides an empirical assessment of the effects of the availability of public information about inflation on price setting. We exploit an event in which economic agents lost access to information about the inflation rate: starting in 2007 the Argentinean government began to misreport the national inflation rate. Our difference-in-difference analysis reveals that this policy led to an increase in the coefficient of variation of prices of 18% with respect to its mean. This effect is analyzed in the context of a general equilibrium model in which agents make use of publicly available information about the inflation rate to set prices. We quantify the model and use it to further explore the effects of higher uncertainty about inflation on the effectiveness of monetary policy and aggregate welfare. We find that monetary policy becomes more effective in a context of higher uncertainty about inflation and that not reporting accurate measures of the CPI entails significant welfare losses.

Why Not Default?

Author : Jerome Roos
Publisher : Princeton University Press
ISBN 13 : 0691180105
Total Pages : 416 pages
Book Rating : 4.6/5 (911 download)

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Book Synopsis Why Not Default? by : Jerome Roos

Download or read book Why Not Default? written by Jerome Roos and published by Princeton University Press. This book was released on 2019-02-12 with total page 416 pages. Available in PDF, EPUB and Kindle. Book excerpt: Jerome Roos provides a sweeping investigation of the political economy of sovereign debt and international crisis management. He takes readers from the rise of public borrowing in the Italian city-states to the gunboat diplomacy of the imperialist era and the wave of sovereign defaults during the Great Depression. He vividly describes the debt crises of developing countries in the 1980s and 1990s and sheds new light on the recent turmoil inside the Eurozone--including the dramatic capitulation of Greece's short-lived anti-austerity government to its European creditors in 2015. Drawing on in-depth case studies of contemporary debt crises in Mexico, Argentina, and Greece, Why Not Default? paints a disconcerting picture of the ascendancy of global finance.

Essays in Sovereign Debt and Default

Author : Ming Qiu
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (116 download)

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Book Synopsis Essays in Sovereign Debt and Default by : Ming Qiu

Download or read book Essays in Sovereign Debt and Default written by Ming Qiu and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three papers on sovereign debt and default. Chapter 1 studies public provision of liquidity in a model of public and private linkages that allows partial sovereign default. Entrepreneurs use their holdings of domestic bonds as liquidity stock to carry out investment and the bond default risk arises from the government's trade-off between private consumption and public expenditure. The model features a feedback loop between aggregate investment and debt sustainability. An adverse productivity shock reduces the government's tax base and hence its ability to repay. The initial decrease in bond price shrinks the economy's liquidity stock and leads to more projects being liquidated. Lower tax base, in turn, reduces bond price further. Chapter 2 analyses the impact of disaster risk on risk premium of debt issued by emerging economies. I distinguish between "natural" and "economic" disasters based on the output dynamics prior to disaster occurrence. My empirical estimation results show that a sample of thirteen emerging countries are subject to economic disasters and the probabilities of disaster occurrence in those economies are positively correlated with their interest spreads. This is consistent with the theoretical prediction of a model constructed to compare economies with natural and economic disaster risks. Chapter 3 relaxes an assumption made in previous works on optimal policy that the government has perfect knowledge of states in the economy and considers a model of optimal provision of liquidity when the government only has partial information. I present solutions to the full information and partial information cases.

Three Essays on Sovereign Debt and Financial Markets

Author : Mauro Alessandro
Publisher :
ISBN 13 :
Total Pages : 94 pages
Book Rating : 4.:/5 (775 download)

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Book Synopsis Three Essays on Sovereign Debt and Financial Markets by : Mauro Alessandro

Download or read book Three Essays on Sovereign Debt and Financial Markets written by Mauro Alessandro and published by . This book was released on 2011 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation analyzes different aspects of the actions of borrowing and repaying debts by governments in both domestic and international financial markets. In Chapter 1, which is co-authored with Guido Sandleris and Alejandro Van der Ghote, we use a unique dataset on sovereign bond issuances and syndicated bank loans to study the duration and determinants of the periods of exclusion from international credit markets that usually follow governments' defaults. Among other results, we find that countries either reaccess the markets in the first years after a default or have to wait much longer to do it, and that political stability significantly increases the chances of reaccessing the market. We present a political economy model of endogenous sovereign borrowing and market reaccess that matches these two features of the data. In Chapter 2, 1 study the relation between the domestic financial system's market structure, the allocation of government debt and the cost of credit for the government. The fact that governments are less likely to repudiate their debts when there are more domestic agents among their creditors creates an externality: when domestic investors demand government bonds, they reduce the probability of default and improve the situation of every other bondholder. The concentration of investment decisions in fewer financial institutions increases the degree of internalization of this effect, expands the demand for government bonds by domestic agents and reduces the cost of credit for the government. In Chapter 3, I propose a mechanism that can explain the observed positive correlation between public and private spreads, taking into account that domestic banks tend to be heavily exposed to sovereign debt. Firms have private information about the results of their projects, information that can be obtained by domestic banks, as long as they pay a verification cost, but not by foreign creditors. A sovereign default has a negative impact on domestic banks, reduces their verification capacity and increases the incentives for firms to declare themselves insolvent. Consequently, risks of sovereign and private defaults are positively correlated.

Essays on Sovereign Default

Author :
Publisher :
ISBN 13 :
Total Pages : 78 pages
Book Rating : 4.:/5 (853 download)

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Book Synopsis Essays on Sovereign Default by :

Download or read book Essays on Sovereign Default written by and published by . This book was released on 2013 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three independent essays on sovereign default. In the first chapter, I develop a quantitative general equilibrium model of sovereign default to account for spillover of default risk across countries. When the collateral constraint for investors binds due to a decrease in the value of collateral, triggered by a high default risk for one country, credit constrained investors ask for liquidity premiums even to countries with normal fundamentals. This increase in the cost of borrowing increases incentives to default for the other countries with normal fundamentals, further constraining investors in obtaining credit through a decrease in the value of collateral. The quantitative results show that this model can generate spillover of default risk across countries. The essay in the second chapter introduces endogenous capital accumulation to a quantitative model of sovereign default based on Eaton and Gersovitz (1981). With a production technology in the model, output and interest rates are jointly determined by the interaction between a sovereign government who can optimally default and foreign creditors taking into account default risk. Adding investment enables the model to generate unique economic dynamics similar to those observed around emerging economies' default crises: (1) Emerging economies' debt crises display a boom-bust pattern. (2) A non-negligible fraction of sovereign defaults occur in good times. The essay in the third chapter explains why emerging economies borrow abroad in foreign currency. We present a two-period model in which foreign lenders offer a small open economy an optimal self-enforcing contract in which borrowing is denominated in borrowers' currency. Taking into account the government's incentive to inflate away the debt, the optimal lending contract provides consumption insurance for the economy in that the contract allows the economy for inflation in bad times but asks for deflation in good times. As the variance of income shocks for the economy increases, it gets more difficult for the contract to satisfy the incentive compatible constraints at the good income state. The numerical results are consistent with the fact that emerging economies with high income volatility suffer from "Original Sin".

The Costs of Sovereign Default

Author : Eduardo Borensztein
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.3/5 ( download)

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Book Synopsis The Costs of Sovereign Default by : Eduardo Borensztein

Download or read book The Costs of Sovereign Default written by Eduardo Borensztein and published by . This book was released on 2008 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper evaluates empirically four types of cost that may result from an international sovereign default: reputational costs, international trade exclusion costs, costs to the domestic economy through the financial system, and political costs to the authorities. It finds that the economic costs are generally significant but short-lived, and sometimes do not operate through conventional channels. The political consequences of a debt crisis, by contrast, seem to be particularly dire for incumbent governments and finance ministers, broadly in line with what happens in currency crises.

Essays on Sovereign Default

Author : Tiago Gomes da Silva Tavares
Publisher :
ISBN 13 :
Total Pages : 124 pages
Book Rating : 4.:/5 (96 download)

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Book Synopsis Essays on Sovereign Default by : Tiago Gomes da Silva Tavares

Download or read book Essays on Sovereign Default written by Tiago Gomes da Silva Tavares and published by . This book was released on 2015 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation contributes to literature of International Economics and, in particular, of Sovereign Default with the study of three distinct issues. In the first chapter, I study the role of international reserves in sovereign debt restructuring episodes when fiscal adjustment is costly. This study departs from the observation that highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments in these countries borrow with an interest rate penalty to compensate lenders for default risk. Reducing debt to the same extent as reserves would maintain net liabilities constant while decreasing interest payments. However, holding reserves can have insurance benefits in a financial crisis. To rationalize the levels of international reserves and external debt observed in the data, a standard dynamic model of equilibrium default is extended to include distortionary taxation and debt restructuring. This chapter shows that fiscal adjustments induced by sovereign default can generate large demand for reserves if taxation is distortionary. At the same time, a non-negligible position in reserves modifies the debt restructuring negotiations upon default. A calibrated version of the model produces recovery rate schedules that are increasing with reserves, as seen in the data, being also able to replicate large positions of reserves and debt to GDP. Finally, I study how both mechanisms play a key quantitative role to generate such result, in fact, not including them, produces a counterfactual demand for reserves that is close to zero. In the second chapter, the relationship between labor market distortions and sovereign debt crises is explored. It is noted that risk of sovereign debt default has frequently affected both emerging market and developed economies. Such financial crises are often accompanied with severe declines of employment that are hard to justify using a standard dynamic stochastic model. In this chapter, I document that a labor wedge deteriorates substantially around swift reversals of current accounts or default episodes. I propose and evaluate two different explanations for these movements by linking the wedges to changes in labor taxes and in the cost of working capital. With these two features included, a dynamic model of equilibrium default is able to replicate the behavior of the labor wedge observed in the data around financial crisis. In the model, higher interest rates are propagated into larger costs of hiring labor through the presence of working capital. As an economy is hit with a stream of bad productivity shocks, the incentives to default become stronger, thus increasing the cost of debt. This reduces firm demand for labor and generates a labor wedge. A similar effect is obtained with a countercyclical tax rate policy. The model is used to shed light on the recent events of the Euro Area debt crisis and in particular of the Greek default event. Finally, in the third chapter, I develop a debt-to-output decomposition and document that a large fraction of the increase in the debt to output ratio during default is accounted by variations in the exchange rate. Also, using a large dataset on historical sovereign debt crises, it is shown in this chapter that devaluations of the exchange rate during periods of default are positively associated with international investor losses (haircuts) when debt is restructured. These results can be rationalized with the fact that large real devaluation decrease output when measured in foreign goods, thus reducing the availability of resources that can be used during negotiations. This implies that exchange rate fluctuations are an important source of risk in emerging economies affecting, among other things, debt dynamics and restructuring outcomes. As such, I conclude that most of the exchange rate neglect, typical in the sovereign default literature, should be seriously reconsidered"--Pages iii-v.

Essays on Sovereign Debt Crisis

Author : Michinao Okachi
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (144 download)

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Book Synopsis Essays on Sovereign Debt Crisis by : Michinao Okachi

Download or read book Essays on Sovereign Debt Crisis written by Michinao Okachi and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters that aim to develop economic models to explain sovereign debt crises. Chapter 2 provides the dynamic general equilibrium model of endogenous sovereign default, incorporating financial intermediaries. By a government's decision to default, government bonds become non-performing and financial intermediaries eliminate them from their net worth. While other literature on endogenous default models assumes that the default state is exogenously given, only depending on TFP or endowment, the model in Chapter 2 creates a mechanism by which the default state is contingent on the amount of debt outstanding in the non-default state. Through this feature, the model quantifies the financial amplification effect on the economy and shows the phenomenon of "Too-Big-to-Default". The model explains the important features of the Argentinean default in 2001, capturing the default frequency, the debt-to-GDP ratio and moments of main variables. Chapter 3 proposes a new sovereign debt crisis model which is applicable to an advanced country, assuming the government's incapability to serve its debts rather than willingness of repayment. The fiscal limit is defined as the sum of discounted future primary surplus under the tax rate to maximize tax revenue. When the debt outstanding exceeds the fiscal limit, the government falls into debt crisis. The economic contraction in the crisis results from the exogenous tax rate and decreased imported inputs. The model replicates the high debt-to-GDP ratio, which the endogenous model cannot assume, and captures movements of important variables of the Spanish debt crisis in around 2012. Chapter 4 introduce foreign bonds based on the model in Chapter 3, for the analysis of several countries such as Greece and Ireland in which a majority of bonds is held by foreign agents. In the model, the government issues bonds for foreign investors, and that leads the outflow of domestic output. Instead of government bonds, households adopt capital for their inter-temporal utility maximization. Also, the fiscal limit is drawn from the exogenous distribution. The simulation result for the Greek economy generally explains the contraction of its economy by the crisis in around 2012 although the effect of imported inputs is overestimated and that of domestic inputs is underestimated.

Essays on Sovereign Default

Author : JungJae Park
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (86 download)

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Book Synopsis Essays on Sovereign Default by : JungJae Park

Download or read book Essays on Sovereign Default written by JungJae Park and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three independent essays on sovereign default. In the first chapter, I develop a quantitative general equilibrium model of sovereign default to account for spillover of default risk across countries. When the collateral constraint for investors binds due to a decrease in the value of collateral, triggered by a high default risk for one country, credit constrained investors ask for liquidity premiums even to countries with normal fundamentals. This increase in the cost of borrowing increases incentives to default for the other countries with normal fundamentals, further constraining investors in obtaining credit through a decrease in the value of collateral. The quantitative results show that this model can generate spillover of default risk across countries. The essay in the second chapter introduces endogenous capital accumulation to a quantitative model of sovereign default based on Eaton and Gersovitz (1981). With a production technology in the model, output and interest rates are jointly determined by the interaction between a sovereign government who can optimally default and foreign creditors taking into account default risk. Adding investment enables the model to generate unique economic dynamics similar to those observed around emerging economies' default crises: (1) Emerging economies' debt crises display a boom-bust pattern. (2) A non-negligible fraction of sovereign defaults occur in good times. The essay in the third chapter explains why emerging economies borrow abroad in foreign currency. We present a two-period model in which foreign lenders offer a small open economy an optimal self-enforcing contract in which borrowing is denominated in borrowers' currency. Taking into account the government's incentive to inflate away the debt, the optimal lending contract provides consumption insurance for the economy in that the contract allows the economy for inflation in bad times but asks for deflation in good times. As the variance of income shocks for the economy increases, it gets more difficult for the contract to satisfy the incentive compatible constraints at the good income state. The numerical results are consistent with the fact that emerging economies with high income volatility suffer from "Original Sin".

Essays on the Political Economy of Sovereign Debt and Default

Author : Antonio Cusato Novelli
Publisher :
ISBN 13 :
Total Pages : 96 pages
Book Rating : 4.:/5 (974 download)

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Book Synopsis Essays on the Political Economy of Sovereign Debt and Default by : Antonio Cusato Novelli

Download or read book Essays on the Political Economy of Sovereign Debt and Default written by Antonio Cusato Novelli and published by . This book was released on 2016 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the relation between political factors (political instability, political fragmentation, policy gridlock and the political color of parties) and fiscal policy outcomes (tax rates, debt levels, default episodes). The second chapter studies the empirical aspects of the aforementioned relation. The third chapter studies how policy gridlock affects tax policy and sovereign default. The last chapter studies the relation between political instability and fragmentation and sovereign debt and default.

Banks, Government Bonds, and Default

Author : Nicola Gennaioli
Publisher : International Monetary Fund
ISBN 13 : 1498391990
Total Pages : 53 pages
Book Rating : 4.4/5 (983 download)

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Book Synopsis Banks, Government Bonds, and Default by : Nicola Gennaioli

Download or read book Banks, Government Bonds, and Default written by Nicola Gennaioli and published by International Monetary Fund. This book was released on 2014-07-08 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.

Essays in Sovereign Default and Emerging Economies

Author : Vivian Zhanwei Yue
Publisher :
ISBN 13 :
Total Pages : 177 pages
Book Rating : 4.:/5 (244 download)

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Book Synopsis Essays in Sovereign Default and Emerging Economies by : Vivian Zhanwei Yue

Download or read book Essays in Sovereign Default and Emerging Economies written by Vivian Zhanwei Yue and published by . This book was released on 2005 with total page 177 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Sovereign Debt Restructurings 1950-2010

Author : Mr.Udaibir S. Das
Publisher : International Monetary Fund
ISBN 13 : 1475505531
Total Pages : 128 pages
Book Rating : 4.4/5 (755 download)

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Book Synopsis Sovereign Debt Restructurings 1950-2010 by : Mr.Udaibir S. Das

Download or read book Sovereign Debt Restructurings 1950-2010 written by Mr.Udaibir S. Das and published by International Monetary Fund. This book was released on 2012-08-01 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a comprehensive survey of pertinent issues on sovereign debt restructurings, based on a newly constructed database. This is the first complete dataset of sovereign restructuring cases, covering the six decades from 1950–2010; it includes 186 debt exchanges with foreign banks and bondholders, and 447 bilateral debt agreements with the Paris Club. We present new stylized facts on the outcome and process of debt restructurings, including on the size of haircuts, creditor participation, and legal aspects. In addition, the paper summarizes the relevant empirical literature, analyzes recent restructuring episodes, and discusses ongoing debates on crisis resolution mechanisms, credit default swaps, and the role of collective action clauses.

Three Essays on Sovereign Default, Self-Control and Policy Implications

Author : LI. LI
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (133 download)

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Book Synopsis Three Essays on Sovereign Default, Self-Control and Policy Implications by : LI. LI

Download or read book Three Essays on Sovereign Default, Self-Control and Policy Implications written by LI. LI and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the role of self-control problems in various macroeconomic environments. I adapt the Gul and Persendorfer preferences to model self-control. The first two chapters focus on sovereign defaults in emerging market economies. The third chapter studies personal finance in a credit constrained asset market. Conventional sovereign default models cannot explain some main features of the Argentine economy. They include a large sovereign debt-to-GDP ratio (31%) and a large, volatile interest rate spread (10% on average). In these conventional models, low exogenous output is the only driving force of default. These models cannot generate enough defaults without sacrificing the way data matches with those main features. The cost of default is also set too low compared to the observed data. The statistical match is especially poor during economic booms. In Chapter 1, I introduce self-control preferences into the standard setup. The sovereign faces a temptation to consume the entire wealth and save nothing for the future due to a lack of self-control. As a result, the sovereign has an incentive to incur a higher level of debt than normal. If the sovereign decides not to default, it would choose a larger repayment to reduce the temptation cost. But the larger repayment comes at the cost of a higher probability of default. As compensation, the international loan market charges a higher interest rate. This self-control model matches the data much better than the conventional models. Observational equivalence between the lack of self-control model and the low discount factor model is a concern. To answer this question, I show that the latter cannot generate the observed interest rate spreads. Introducing self-control preferences also adds computational difficulties. I develop a new computational algorithm to handle non-local approximations of the value functions. This algorithm is much more precise, and at the same time more efficient than the standard algorithms. In Chapter 2, I investigate the welfare effects of raising consumption tax on sovereign default. In a conventional sovereign default model, a consumption tax with a lump-sum rebate is neutral. In contrast, if the sovereign lacks self-control, a consumption tax can improve welfare. Calibrating the model by using Argentina's data, welfare is hump-shaped over consumption tax. The optimal tax rate is 41%, and if Argentina changes to this tax rate, the default probability reduces from 10% to 5.32%. Chapter 3 concerns the effects of raising borrowing limit in a credit-constrained setting. A rational agent cannot be worse off with an increased borrowing limit. In this case, there is no ground for imposing a credit limit to the agent. But if the decision maker lacks self-control, the reverse conclusion is true. I study two cases. In the first case, the decision maker has a non-binding credit constraint. Welfare decreases as the credit constraint relaxes, which leads to a larger temptation cost. In the second case, the decision maker has a binding credit constraint. In this case, relaxing the binding credit constraint creates a positive effect. It also offsets the increase in temptation cost. The net effect can only be positive at the margins if the decision maker's discount factor is low relative to the market.

Essays in Finance, Sovereign Debt Maturity, and Debt Ownership Structure

Author : Yu Man Tam
Publisher :
ISBN 13 :
Total Pages : 92 pages
Book Rating : 4.:/5 (972 download)

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Book Synopsis Essays in Finance, Sovereign Debt Maturity, and Debt Ownership Structure by : Yu Man Tam

Download or read book Essays in Finance, Sovereign Debt Maturity, and Debt Ownership Structure written by Yu Man Tam and published by . This book was released on 2016 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores the relationship between sovereign debt ownership, default probabilities, and debt returns, focusing on the increasing domestic debt ownership in devloped countries since the global financial crisis in 2007. It also explains, both theoretically and empircally, how changes in sovereign debt maturity structure would affect the real economy. This dissertation helps advance the study of the linkages between sovereign debt composition, asset prices and the real economy. In the first chapter, I study the relationship bewteen sovereign debt default and debt ownership structure. Major developed countries have experienced a significant run-up in public debt after the onset of the global financial crisis in 2008. However, the impact on sovereign debt ownership varies across countries. Specifically, the share of debt held by domestic banks has increased in GIIPS countries but declined in non-GIIPS countries. I explain the cross-country differences in debt ownership structure using a dynamic equilibrium model with strategic and non-discriminatory defaults, in which sovereign debt can serve as collateral for expanding private investments. The key insight is that the share of debt held domestically is positively correlated with the government's incentive to default. Consequently, the model predicts that the share of domestically-held debt is strictly increasing in total debt only in highly-indebted countries whose debt has low collateral value. My result is consistent with the notion that domestic debt is a committment device for debt repayment. The key policy implication is that changes in debt ownership are important indicators for the optimality of public debt level. Using data from a panel of 11 countries between 2007 and 2014, I find evidence consistent with these predictions. In the second chapter, I study the interaction between monetary and fiscal policies, and how changes in fiscal policies, such as the level of debt and debt maturity composition, would affect inflation, the real economy and asset prices. I developed a three-period equilibrium model, in which monetary policies are modelled as open market operations. In my model, inflation and the term structure of interest rates are jointly determined by monetary and fiscal policies, and therefore Sargent (1981)'s "game of chicken'' problem is avoided. I show from the model that fiscal instruments, such as the primary surplus, and the level and maturity structure of government debt, have important implications on inflations and the term structure of interest rates. I then provide robust empirical evidence on how changes in debt-maturity structure are associated with changes in future inflation using U.S. data. One percent increase in the fraction of short-term debt issued is associated with more than 0.2 percent increase in future inflation of different horizons. Empirical evidecne also shows that changes in the short-end of the maturity structure has the most explanatory power over short- and medium- horizons, whereas changes in the long-end of the maturity structure has the most explanatory power over long- horizons.