Sovereign Debt Restructurings: Preemptive or Post-Default

Arbeitspapier

Sovereign debt restructurings can be implemented preemptively - prior to a payment default. We code a comprehensive new dataset and find that preemptive restructurings (i) are frequent (38% of all deals 1978-2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output losses. To rationalize these stylized facts, we build a quantitative sovereign debt model that incorporates preemptive and post-default renegotiations. The model improves the fit with the data and explains the sovereign’s optimal choice: preemptive restructurings occur when default risk is high ex-ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5605

Classification and Topics

• Classification: Wirtschaft ; International Lending and Debt Problems ; Open Economy Macroeconomics ; National Debt; Debt Management; Sovereign Debt
• Subject: sovereign debt ; default ; debt restructuring ; crisis resolution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Asonuma, Tamon ; Trebesch, Christoph
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/123249
• Last update: 10.03.2025, 11:45 AM CET