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Debt dilution: when it is a major problem and how to deal with it

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  • Burcu Eyigungor

Abstract

Today we recognize sovereign default, which was once largely confined to developing economies, as a threat not only to investors and to the defaulting country's economic and political stability but also to the global financial system. Burcu Eyigungor explains that a major reason that countries are prone to debt crises is a phenomenon called debt dilution.

Suggested Citation

  • Burcu Eyigungor, 2013. "Debt dilution: when it is a major problem and how to deal with it," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-8.
    • Handle: RePEc:fip:fedpbr:00001
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/2013/q4/brQ413_debt_dilution.pdf
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    References listed on IDEAS

    as
    1. Furceri, Davide & Zdzienicka, Aleksandra, 2012. "How costly are debt crises?," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 726-742.
    2. De Paoli, Bianca & Hoggarth, Glenn & Saporta, Victoria, 2009. "Output costs of sovereign crises: some empirical estimates," Bank of England working papers 362, Bank of England.
    3. Satyajit Chatterjee & Burcu Eyigungor, 2012. "Maturity, Indebtedness, and Default Risk," American Economic Review, American Economic Association, vol. 102(6), pages 2674-2699, October.
    4. Juan Carlos Hatchondo & Leonardo Martinez & César Sosa-Padilla, 2016. "Debt Dilution and Sovereign Default Risk," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1383-1422.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, vol. 94(2), pages 53-58, May.
    6. Harold L. Cole & Timothy J. Kehoe, 2000. "Self-Fulfilling Debt Crises," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(1), pages 91-116.
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    Cited by:

    1. Pablo Guerrón-Quintana, 2013. "The economics of small open economies," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 9-18.
    2. Jason Donaldson & Denis Gromb & Giorgia Piacentino, 2019. "Conflicting Priorities: A Theory of Covenants and Collateral," 2019 Meeting Papers 157, Society for Economic Dynamics.
    3. Benjamin Lester, 2013. "Breaking the ice: government interventions in frozen markets," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 19-25.
    4. Satyajit Chatterjee, 2016. "Chapter 11 for Countries?," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 1(2), pages 7-14, April.

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