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Endogenous Creditor Seniority and External Debt Values

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  • Michael Dooley

    (International Monetary Fund)

  • Mark R. Stone

    (International Monetary Fund)

Abstract

A new aggregation scheme used to measure the sources of fiscal financing of indebted countries suggests that the seniority of domestic debt improved at the expense of foreign bank debt during the late 1980s. This paper argues that this was the revenue-maximizing response of governments to capital flight that drained the domestic financial "tax base" subject to indirect taxation. Empirical analysis indicates that the profile of the sources of fiscal financing influenced external debt values. Econometric analysis implies that previous studies have neglected an important reason for the decline in loan values from 1985 to 1989: higher international interest rates.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 40 (1993)
Issue (Month): 2 (June)
Pages: 395-413

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Handle: RePEc:pal:imfstp:v:40:y:1993:i:2:p:395-413

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References

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  1. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  2. Manmohan S. Kumar & Pablo Emilio Guidotti, 1991. "Domestic Public Debt of Externally Indebted Countries," IMF Occasional Papers, International Monetary Fund 80, International Monetary Fund.
  3. Calvo, Guillermo A, 1992. "Are High Interest Rates Effective for Stopping High Inflation? Some Skeptical Notes," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(1), pages 55-69, January.
  4. Sule Ozler & Harry Huizinga, 1992. "Bank Exposure, Capital and Secondary Market Discounts on the Developing Country Debt," NBER Working Papers 3961, National Bureau of Economic Research, Inc.
  5. Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
  6. Leonardo Bartolini & Avinash K. Dixit, 1990. "Market Valuation of Illiquid Debt and Implications for Conflicts Among Creditors," IMF Working Papers, International Monetary Fund 90/88, International Monetary Fund.
  7. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1986. "The Pure Theory of Country Risk," NBER Working Papers 1894, National Bureau of Economic Research, Inc.
  8. Easterly, William R., 1989. "Fiscal adjustment and deficit financing during the debt crisis," Policy Research Working Paper Series, The World Bank 138, The World Bank.
  9. Stone, Mark R., 1991. "Are sovereign debt secondary market returns sensitive to macroeconomic fundamentals? Evidence from the contemporary and interwar markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 10(1, Supple), pages S100-S122, March.
  10. Kletzer, K.M. & Wright, B.D., 1990. "Sovereign Debt Renegotiation In A Consumption-Smoothing Model," Papers, Yale - Economic Growth Center 610, Yale - Economic Growth Center.
  11. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  12. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  13. Anayiotos, George & de Pinies, Jaime, 1990. "The secondary market and the international debt problem," World Development, Elsevier, Elsevier, vol. 18(12), pages 1655-1669, December.
  14. Boehmer, Ekkehart & Megginson, William L, 1990. " Determinants of Secondary Market Prices for Developing Country Syndicated Loans," Journal of Finance, American Finance Association, American Finance Association, vol. 45(5), pages 1517-40, December.
  15. Ozler, Sule & Huizinga, Harry, 1991. "How factors in creditor countries affect secondary market prices for developing country debt," Policy Research Working Paper Series, The World Bank 622, The World Bank.
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Cited by:
  1. Sven Steinkamp & Frank Westermann, 2012. "On Creditor Seniority and Sovereign Bond Prices in Europe," CESifo Working Paper Series 3944, CESifo Group Munich.
  2. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc.
  3. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series, The World Bank 1073, The World Bank.
  4. Clark, Ephraim & Kassimatis, Konstantinos, 2004. "Country financial risk and stock market performance: the case of Latin America," Journal of Economics and Business, Elsevier, Elsevier, vol. 56(1), pages 21-41.
  5. Goldstein, Morris, 1995. "Coping with too much of a good thing : policy responses for large capital inflows in developing countries," Policy Research Working Paper Series, The World Bank 1507, The World Bank.
  6. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, European Finance Association, vol. 14(2), pages 235-262.
  7. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, Elsevier, vol. 48(2), pages 389-418, March.
  8. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 83, International Economics Section, Departement of Economics Princeton University,.

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