Serial Sovereign Defaults and Debt Restructurings
Author | : Mr.Tamon Asonuma |
Publisher | : International Monetary Fund |
Total Pages | : 25 |
Release | : 2016-03-21 |
ISBN-10 | : 9781475524697 |
ISBN-13 | : 1475524692 |
Rating | : 4/5 (692 Downloads) |
Download or read book Serial Sovereign Defaults and Debt Restructurings written by Mr.Tamon Asonuma and published by International Monetary Fund. This book was released on 2016-03-21 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same external debt-to-GDP ratio. These countries actually have repeated defaults or restructurings in short periods. This paper explains these stylized facts within a dynamic stochastic general equilibrium framework by explicitly modeling renegotiations between a defaulting country and its creditors. The quantitative analysis of the model reveals that the equilibrium probability of default for a given debt-to-GDP level is weakly increasing with the number of past defaults. The model also accords with an additional fact: lower recovery rates (high NPV haircuts) are associated with increases in spreads at renegotiation.