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A Constant Recontracting Model of Sovereign Debt

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  • Bulow, Jeremy
  • Rogoff, Kenneth S.

Abstract

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaults or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interests of different lenders and of banks and creditor country taxpayers.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 12491028.

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Date of creation: 1989
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Publication status: Published in Journal of Political Economy -Chicago-
Handle: RePEc:hrv:faseco:12491028

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  1. Moran, Theodore H., 1973. "Transnational Strategies of Protection and Defense by Multinational Corporations: Spreading the Risk and Raising the Cost for Nationalization in Natural Resources," International Organization, Cambridge University Press, Cambridge University Press, vol. 27(02), pages 273-287, March.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  3. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  4. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(3), pages 345-64, July.
  5. Sebastian Edwards, 1985. "The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis of Developing Countries' Foreign Borrowing," NBER Working Papers 1689, National Bureau of Economic Research, Inc.
  6. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, Econometric Society, vol. 52(6), pages 1351-64, November.
  7. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  8. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472 National Bureau of Economic Research, Inc.
  9. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  10. Barry Eichengreen, 1987. "Til Debt Do Us Part: The U.S. Capital Market and Foreign Lending, 1920-1955," NBER Working Papers 2394, National Bureau of Economic Research, Inc.
  11. Dixit, Avinash, 1987. " Issues of Strategic Trade Policy for Small Countries," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 89(3), pages 349-67.
  12. Carlos F. Diaz-Alejandro, 1983. "Some Aspects of the 1982-83 Brazilian Payments Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 515-552.
  13. Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, Econometric Society, vol. 53(1), pages 207-11, January.
  14. Eaton, Jonathan & Taylor, Lance, 1986. "Developing country finance and debt," Journal of Development Economics, Elsevier, Elsevier, vol. 22(1), pages 209-265, June.
  15. Steven C. Kyle & Jeffrey Sachs, 1984. "Developing Country Debt and the Market Value of Large Commercial Banks," NBER Working Papers 1470, National Bureau of Economic Research, Inc.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The science of haircuts
    by Olaf Storbeck in Economics Intelligence on 2011-07-19 08:16:34
  2. Greece: CanÂ’t Pay/WonÂ’t Pay? by Mark Harrison
    by Mark Harrison in Mark Harrison's blog on 2012-05-23 16:54:58
  3. Quels sont les coûts d’un défaut souverain ?
    by ? in D'un champ l'autre on 2014-08-02 13:35:00
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