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Sovereign Default, Private Sector Creditors and the IFIs

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  • Emine Boz

Abstract

This paper builds a model of a sovereign borrower that has access to credit from private sector creditors and an IFI. Private sector creditors and the IFI offer different debt contracts that are modelled based on the institutional frameworks of these two types of debt. We analyze the decisions of a sovereign on how to allocate its borrowing needs between these two types of creditors, and when to default on its debt to the private sector creditor. The numerical analysis shows that, consistent with the data; the model predicts countercyclical IFI debt along with procyclical commercial debt flows, also matching other features of the data such as frequency of IFI borrowing and mean IFI debt stock.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/46.

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Length: 29
Date of creation: 01 Mar 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/46

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Keywords: Emerging markets; Borrowing; External debt; Economic models; debt; commercial debt; creditors; interest; private sector creditors; sovereign debt; debt flows; creditor; defaults; private sector creditor; loans; debt service; debt stock; commercial borrowing; repayment; balance of payments; payments; sovereign default; private sector debt; debt renegotiation; debt ratios; sovereign borrower; private creditors; commercial credit; debt data; obligations; debt contracts; repudiation; debt obligations; commercial creditors; default risk; credit risk; debt forgiveness; bond yields; debt crises; amount of debt; overdue obligations; reserve holding; market debt; restructuring; access to credit; credit market; creditors data; net debt; sovereign bonds; current account; debt intolerance; general resources account; debt repayment; international lending; bailouts; reserve accumulation; net debtor; reserve management; debts; sovereign defaults;

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Citations

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Cited by:
  1. Dellas, Harris & Niepelt, Dirk, 2013. "Credibility For Sale," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9562, C.E.P.R. Discussion Papers.
  2. Eduardo Fernández-Arias & Andrew Powell & Alessandro Rebucci, 2009. "The Multilateral Response to the Global Crisis: Rationale, Modalities, and Feasibility," IDB Publications 6770, Inter-American Development Bank.
  3. Bora Durdu & Emine Boz, 2011. "Emerging Market Business Cycles: The Role of Labor Market Frictions," 2011 Meeting Papers 1092, Society for Economic Dynamics.
  4. Juessen, Falko & Schabert, Andreas, 2013. "Fiscal Policy, Sovereign Default, and Bailouts," IZA Discussion Papers 7805, Institute for the Study of Labor (IZA).
  5. Leonardo Martinez & Juan Hatchondo & Javier Bianchi, 2012. "Sovereign defaults and optimal reserves management," 2012 Meeting Papers, Society for Economic Dynamics 1125, Society for Economic Dynamics.
  6. Daude, Christian, 2012. "Sovereign default risk and volatility," Economics Letters, Elsevier, Elsevier, vol. 114(1), pages 47-50.
  7. Leonardo Martinez & Cesar Sosa Padilla & Juan Hatchondo, 2012. "Debt dilution and sovereign default risk," 2012 Meeting Papers, Society for Economic Dynamics 974, Society for Economic Dynamics.
  8. Markus Jorra, 2010. "The Effect of IMF Lending on the Probability of Sovereign Debt Crises," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201026, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  9. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2009. "On the cyclicality of the interest rate in emerging economy models: solution methods matter," Working Paper, Federal Reserve Bank of Richmond 09-13, Federal Reserve Bank of Richmond.
  10. Juan Carlos Hatchondo & Leonardo Martinez & Cesar Sosa-Padilla, 2014. "Debt Dilution and Sovereign Default Risk," Department of Economics Working Papers 2014-06, McMaster University.
  11. Florian Kirsch & Ronald Rühmkorf, 2013. "Sovereign Borrowing, Financial Assistance and Debt Repudiation," Bonn Econ Discussion Papers, University of Bonn, Germany bgse01_2013, University of Bonn, Germany.

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