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Observing bailout expectations during a total eclipse of the sun

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Author Info
Oscar Bernal () (Université Libre de Bruxelles.)
Kim Oosterlinck () (Solvay Business School, Université Libre de Bruxelles.)
Ariane Szafarz () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles.)

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Abstract

Exploiting an exceptional historical example, this paper proposes an original method to address the existence of sovereign creditor moral hazard. As the coronas which are observable only during a total eclipse of the sun, market-specific prices of repudiated bonds are observable only when extreme conditions (a war, in this instance) segment the markets. Such events are very rare but insightful as they allow for isolating pure country-specific bailout expectations. The paper shows that bailouts do indeed create creditor moral hazard. Based on an impulse response analysis, the econometric results further emphasize the influence of bailout expectations in sovereign bonds valuation.

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Publisher Info
Paper provided by Université libre de Bruxelles, Department of Applied Economics (DULBEA) in its series Working Papers DULBEA with number 09-01.RS.

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Length: 33 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:dul:wpaper:09-01rs

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Related research
Keywords: bailout; bonds; moral hazard; repudiation; sovereign debt; Soviet; Russia;

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
G1 - Financial Economics - - General Financial Markets
N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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  26. Oscar Bernal & Kim Oosterlinck & Ariane Szafarz, 2008. "Observing bailout expectations during a total eclipse of the sun," Working Papers CEB 08-015.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
    Other versions:
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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. Oscar Bernal & Kim Oosterlinck & Ariane Szafarz, 2009. "Observing bailout expectations during a total eclipse of the sun," Working Papers DULBEA 09-01.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  2. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," Working Papers DULBEA 09-03.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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This page was last updated on 2009-11-21.

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