Sovereign Debt Restructurings: Preemptive or Post-Default

Asonuma, Tamon and Trebesch, Christoph (7. November 2015): Sovereign Debt Restructurings: Preemptive or Post-Default. Discussion Papers in Economics 2015-18

Abstract

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.

• Item Type: Paper
• Keywords: Sovereign Debt, Default, Debt Restructuring, Crisis Resolution
• Faculties: Economics > Munich Discussion Papers in Economics
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: F34, F41, H63
• Language: English

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