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Debt Buybacks And Forgiveness In A Model With Voluntary Repudiation

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PETER B. KENEN

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Abstract

Debt reduction is usually analyzed in models where default is involuntary and the gains from debt reduction derive from various disincentives linked to a large debt overhang. This paper uses a model in which default is voluntary and shows that debt reduction can be beneficial even in the absence of those disincentives, by inducing debtors to renounce or postpone repudiation. This is likely to happen when debts are large compared to the penalties incurred by debtors if they repudiate. Furthermore, debtors can gain from debt buybacks even after allowing fully for the opportunity costs of using reserves for that purpose. [430]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 5 (1991)
Issue (Month): 1 (April)
Pages: 1-13
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Handle: RePEc:taf:intecj:v:5:y:1991:i:1:p:1-13

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  1. Rudiger Dornbusch, 1988. "Our LDC Debts," NBER Working Papers 2138, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Rudiger Dornbusch & Thomas S. Johnson & Anne O. Krueger, 1988. "Our LDC Debts," NBER Chapters, in: The United States in the World Economy, pages 161-214 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Paul R. Krugman, 1989. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," NBER Working Papers 12783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Jonathan P. Thomas, 2001. "Default Costs, Willingness to Pay and Sovereign Debt Buybacks," International Finance 0103002, EconWPA. [Downloadable!]
  3. Peter Hjertholm & Jytte Laursen & Howard White, 2000. "Macroeconomic Issues in Foreign Aid," Discussion Papers 00-05, University of Copenhagen. Department of Economics. [Downloadable!]
  4. Hossein Kazemi & Ayla Ogus, 2008. "The Determinants of the Secondary Market Price of Less Developed Countries’ Debt," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(2), pages 153-164, June. [Downloadable!] (restricted)
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