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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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  1. Barry Eichengreen & Kenneth Kletzer, 2003. "Crisis Resolution: Next Steps," NBER Working Papers 10095, National Bureau of Economic Research, Inc.
  2. Andrew G Haldane & Gregor Irwin & Victoria Saporta, 2004. "Bail out or work out? theoretical considerations," Economic Journal, Royal Economic Society, vol. 114(494), pages C130-C148, 03.
  3. Rochet, Jean Charles & Vives, Xavier, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," CEPR Discussion Papers 3233, C.E.P.R. Discussion Papers.
  4. Andrew G Haldane & Adrian Penalver & Victoria Saporta & Hyun Song Shin, 2003. "Analytics of sovereign debt restructuring," Bank of England working papers 203, Bank of England.
  5. Stephen Morris & Hyun Song Shin, 2001. "Rethinking Multiple Equilibria in Macroeconomic Modeling," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 139-182 National Bureau of Economic Research, Inc.
  6. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Shin, Hyun, 2000. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," Cowles Foundation Discussion Papers 1273, Cowles Foundation for Research in Economics, Yale University.
  7. Carlsson, H. & Damme, E.E.C. van, 1993. "Global games and equilibrium selection," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154416, Tilburg University.
  8. Vives, Xavier, 2004. "Complementarities and Games: New Developments," CEPR Discussion Papers 4742, C.E.P.R. Discussion Papers.
  9. Kenneth Kletzer & Barry J. Eichengreen & Ashoka Mody, 2003. "Crisis Resolution," IMF Working Papers 03/196, International Monetary Fund.
  10. Prasanna Gai & Simon Hayes & Hyun Song Shin, 2001. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," LSE Research Online Documents on Economics 25066, London School of Economics and Political Science, LSE Library.
  11. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September.
  12. Andy Haldane & Mark Kruger, 2001. "The Resolution of International Financial Crises: Private Finance and Public Funds," Working Papers 01-20, Bank of Canada.
  13. Ghosal, Sayantan & Miller, Marcus, 2003. "Coordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures," CEPR Discussion Papers 3729, C.E.P.R. Discussion Papers.
  14. Giancarlo Corsetti & Bernardo Guimaraes & Nouriel Roubini, 2003. "International Lending of Last Resort and Moral Hazard: A Model of IMF's Catalytic Finance," NBER Working Papers 10125, National Bureau of Economic Research, Inc.
  15. Prasanna Gai & Hyun Song Shin, 2003. "Debt maturity structure with pre-emptive creditors," Bank of England working papers 201, Bank of England.
  16. Miller, Marcus & Zhang, Lei, 2000. "Sovereign Liquidity Crises: The Strategic Case for a Payments Standstill," Economic Journal, Royal Economic Society, vol. 110(460), pages 335-62, January.
  17. Metz, Christina E., 2000. "Private and public information in self-fulfilling currency crises," Research Notes 00-7, Deutsche Bank Research.
  18. Michael Chui & Prasanna Gui & Andrew G Haldane, 2000. "Sovereign liquidity crises: analytics and implications for public policy," Bank of England working papers 121, Bank of England.
  19. 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 25045, London School of Economics and Political Science, LSE Library.
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