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Serial Sovereign Defaults and Debt Restructurings
Author:
Mr. Tamon Asonuma
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 066
Language:
English
Publication Date:
16 Mar 2016
DOI:
https://doi.org/10.5089/9781513596648.001
ISBN:
9781513596648
ISSN:
1018-5941
Pages:
45
Keywords:
WP; credit history; rate of return; utility function; Serial Default; Sovereign Default; Debt Restructuring; Past Credit History; Haircuts; Recovery rates; Risk Premia; recovery rate; default probability; defaulted debt; GDP ratio; credit history ht; Debt renegotiation; Credit; Asset prices; Sovereign debt restructuring; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2016: Issue 066