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Using standstills to manage sovereign debt crises

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  • Aitor Erce-Domínguez

    ()
    (Banco de España)

Abstract

This paper presents a model analyzing the potential for an International Court with powers to declare standstills to mitigate the coordination problem inherent to roll-overs in sovereign debt markets. It is shown that, regardless of the quality of the information handled by such an Institution, the scale of the coordination problem is reduced since its mere existence forces investors to focus on the Court's course of action rather than on other investors' beliefs. Furthermore, the model shows that, in order to avoid moral hazard, the right of recourse to the Court should be made conditional.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0636e.pdf
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0636.

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Length: 36 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:bde:wpaper:0636

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Keywords: sovereign debt; liquidity runs; standstills; effort;

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  2. Andy Haldane & Mark Kruger, 2001. "The Resolution of International Financial Crises: Private Finance and Public Funds," Working Papers, Bank of Canada 01-20, Bank of Canada.
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  4. Gai, Prasanna & Hayes, Simon & Shin, Hyun Song, 2004. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," Journal of International Economics, Elsevier, Elsevier, vol. 62(2), pages 245-262, March.
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  10. Miller, Marcus & Zhang, Lei, 2000. "Sovereign Liquidity Crises: The Strategic Case for a Payments Standstill," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(460), pages 335-62, January.
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  14. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Department of Economics, Working Paper Series qt4cj974r4, Department of Economics, UC Santa Cruz.
  15. Stephen Morris & Hyun Song Shin, 2000. "Rethinking Multiple Equilibria in Macroeconomic Modelling," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1260, Cowles Foundation for Research in Economics, Yale University.
  16. Kenneth Kletzer & Barry J. Eichengreen & Ashoka Mody, 2003. "Crisis Resolution," IMF Working Papers 03/196, International Monetary Fund.
  17. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2001. "Does one Soros make a difference?: a theory of currency crises with large and small traders," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25045, London School of Economics and Political Science, LSE Library.
  18. Chui, Michael & Gai, Prasanna & Haldane, Andrew G., 2002. "Sovereign liquidity crises: Analytics and implications for public policy," Journal of Banking & Finance, Elsevier, Elsevier, vol. 26(2-3), pages 519-546, March.
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