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Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt

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  • Harold L. Cole
  • James Dow
  • William B. English

Abstract

This paper develops a simple model of sovereign debt in which defaulting nations are excluded from capital markets and regain access by making partial repayments. This is consistent with the historical evidence that defaulting countries return to international loan markets soon after a settlement, but after varying periods of exclusion.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 180.

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Date of creation: 1994
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Handle: RePEc:fip:fedmsr:180

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Keywords: Debts; External;

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References

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  1. Fernandez, R. & Rosenthal, R.W., 1988. "Sovereign-Debt Renegotiations: A Strtegic Analysis," Papers 85, Boston University - Center for Latin American Development Studies.
  2. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  3. Kahn, J.A., 1989. "Credible Borrowing Constraints With Renegotiable Debt," RCER Working Papers 175, University of Rochester - Center for Economic Research (RCER).
  4. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Papers 411, Stockholm - International Economic Studies.
  5. Garber, Peter M., 1991. "Alexander Hamilton's market-based debt reduction plan," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 79-104, January.
  6. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc.
  7. Herschel I. Grossman, 1987. "Lending to an Insecure Sovereign," NBER Working Papers 2443, National Bureau of Economic Research, Inc.
  8. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
  9. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  10. Harold L. Cole & James Dow & William B. English, 1994. "Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt," Staff Report 180, Federal Reserve Bank of Minneapolis.
  11. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
  12. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
  13. Harold L. Cole & Patrick J. Kehoe, 1991. "Reputation with multiple relationships: reviving reputation models of debt," Staff Report 137, Federal Reserve Bank of Minneapolis.
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