Essays on sovereign debt structure default and renegotiation

These periods have been studied and documented, among others, by Marichal for Latin American countries betweenLindert and Morton from the early 19th century, Eichengreen and Portes and Jorgensen and Sachs for the interwar years. This effect is more severe as default and debt restructuring become more likely, resulting in higher risk premia on long-term bonds as a crisis approaches.

These inefficiencies give rise to "default risk" and "debt dilution risk". The case of Mexico is very complex and ultimately led to a full-scale military invasion by French, British, and Spanish forces. These tests were carried out for all the models, with Gamma and Inverse Gaussian and without unobserved heterogeneity, for which the integrated hazard expression is available.

Contrary to the common wisdom that delays are costly and inefficient, this chapter argues that delays can be beneficial in that they allow the economy to recover from a crisis and make more resources available to settle the defaulted debt.

Coefficients estimated with AFT models are expected to have the opposite signs. After the default episodes, most Latin American Republics witnessed decades of internal and external conflicts.

The end of the default; that is, the time of the settlement, is considered as a proxy for the time the debtor country can reenter the credit markets. Section II discuses the different models considered and the methodology used.


The values assigned to the categorical variable are as follow: A high growth rate reveals information about an improvement in the state of the economy so much so that the government has enough resources to increase its expenditures.

Given the definition of the variables, and assuming worse terms 22 for the creditors imply larger negotiation processes, it is expected a positive sign in the coefficients of all the indicator variables, these coefficients are expected to be greater than one all the settlement rates are expected to be greater than the one of the omitted group.

We also show that US-interest-rate shocks affect domestic variables mostly through their effects on country spreads.

Default and Renegotiation: A Dynamic Model of Debt

Although this categorical variable is ordinal in nature, the particular numbers assigned to each category are arbitrary. It is a choice of the debtor whether to include CACs in debt contracts. For the pre period, Esteves finds that the presence of such bondholder committees is positively correlated with ex-post rates of return.

Many of these crises shared two features: In both cases the coefficient should be positive.

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Since creditors are able to recover just a portion of the defaulted debt in a period of time longer than that originally stated in the contract —and they incorporate this information when establishing the credit ceiling and the interest rate they will charge for each loan— the lower the portion of repayment, the more expensive the loan and the lower the credit ceiling.

The omitted group is the one formed by countries that negotiated under the Lyon-Cologne terms and under Toronto-London-Naples terms, so all comparisons are made with respect to this group. Second, we can deal with the dependencies between default durations using variance correction models. A country that has only rescheduled its debt but that has not received any nominal reduction renegotiated under concessionary rates is excluded, on average, The evidence suggests that this assumption is flawed: However, if CACs are preventing such behavior, I uncover a new beneficial role of secondary markets.

The introduction of secondary markets in this framework yields interesting results. Major developed countries have experienced a significant run-up in public debt after the onset of the global financial crisis in My result is consistent with the notion that domestic debt is a committment device for debt repayment.

In practice conditionality is provided by the existence of an appropriate program supported by the IMF, which demonstrates the need for debt 30 relief.

Essays on sovereign debt markets

The exclusion of bond debt from the negotiations until the mid s, because it was practically non-existent, gave the false idea of its seniority over bank loans. This is consistent with the predictions of the model:.

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One appreciates the recommendation of providing information on restructuring debt to help the company combat its recent financial troubles. Even though the company is in the process of reorganizing one believes this information will help a company in reporting the restructuring of debt.

Contagion of Sovereign Default calibrate the model’s stochastic structure. We nd that in our model with correlated shocks, () study debt renegotiation in a model with risk-neutral lenders. They nd that debt renegotiation allows the model to better match the default frequencies and the debt.

The term “global financial crisis” is • Sovereign debt 1. 2. Abdelal, Khaled Moh'd. “Essays on Sovereign Debt Structure, Default and Renegotiation.” Ph.D., University of Maryland, College Park, Bianco, Katalina M.

The Subprime Lending Crisis: Causes and Effects of the Mortgage.

Essays in sovereign default and emerging economies

ESSAYS ON SOVEREIGN DEBT AND DEFAULT (Order No.) HYUNGSEOK JOO Boston University, Graduate School of Arts and Sciences, that explicitly incorporates sovereign default, debt renegotiation, and government capital.

Recent European debt crises have ignited academic and policy debates on how to deal. Sovereign Default and Debt Renegotiation Vivian Z.

Yue ∗ New York University November Abstract This paper develops a small open economy model to study sovereign default and debt. "Default and Renegotiation: A Dynamic Model of Debt," Harvard Institute of Economic Research Working PapersHarvard - Institute of Economic Research.

Oliver Hart & John Moore, " Default and Renegotiation: A Dynamic Model of Debt," NBER Working PapersNational Bureau of Economic Research, Inc.

Essays on sovereign debt structure default and renegotiation
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"Essays in sovereign default and emerging economies" by Vivian Zhanwei Yue