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Endogenous Creditor Seniority and External Debt Values

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Author Info
Michael Dooley
Mark R. Stone

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Abstract

A new aggregation scheme used to measure the sources of fiscal financing of indebted countries suggests that there was a fundamental improvement in the seniority of domestic debt at the expense of foreign bank debt during the late 1980s. We argue that this was the revenue maximizing response of governments to internal and external capital flight that drained the domestic financial "tax base" subject to indirect taxation. Empirical analysis indicates that the profile of the sources of fiscal financing influenced external debt values. The econometric analysis also implies that previous studies have neglected an important reason for the decline in loan values from 1985 to 1989: the increase in international interest rates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4172.

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Date of creation: Sep 1992
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Handle: RePEc:nbr:nberwo:4172

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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. Avinash K. Dixit & Leonardo Bartolini, 1990. "Market Valuation Of Illiquid Debt And Implications For Conflicts Among Creditors," IMF Working Papers 90/88, International Monetary Fund.
  2. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1986. "The Pure Theory of Country Risk," NBER Working Papers 1894, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • Eaton, Jonathan & Gersovitz, Mark & Stiglitz, Joseph E., 1986. "The pure theory of country risk," European Economic Review, Elsevier, vol. 30(3), pages 481-513, June. [Downloadable!] (restricted)
    • 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. [Downloadable!]
  3. Easterly, William R., 1989. "Fiscal adjustment and deficit financing during the debt crisis," Policy Research Working Paper Series 138, The World Bank. [Downloadable!]
  4. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October. [Downloadable!] (restricted)
  5. Stone, Mark R., 1991. "Are sovereign debt secondary market returns sensitive to macroeconomic fundamentals? Evidence from the contemporary and interwar markets," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages S100-S122, March. [Downloadable!] (restricted)
  6. Kletzer, K.M. & Wright, B.D., 1990. "Sovereign Debt Renegotiation In A Consumption-Smoothing Model," Papers 610, Yale - Economic Growth Center.
  7. Boehmer, Ekkehart & Megginson, William L, 1990. " Determinants of Secondary Market Prices for Developing Country Syndicated Loans," Journal of Finance, American Finance Association, vol. 45(5), pages 1517-40, December. [Downloadable!] (restricted)
  8. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-78, February. [Downloadable!] (restricted)
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  9. Anayiotos, George & de Pinies, Jaime, 1990. "The secondary market and the international debt problem," World Development, Elsevier, vol. 18(12), pages 1655-1669, December. [Downloadable!] (restricted)
  10. Manmohan S. Kumar & Pablo Emilio Guidotti, 1991. "Domestic Public Debt of Externally Indebted Countries," IMF Occasional Papers 80, International Monetary Fund.
  11. Ozler, Sule & Huizinga, Harry, 1991. "How factors in creditor countries affect secondary market prices for developing country debt," Policy Research Working Paper Series 622, The World Bank. [Downloadable!]
  12. Calvo, Guillermo A, 1992. "Are High Interest Rates Effective for Stopping High Inflation? Some Skeptical Notes," World Bank Economic Review, Oxford University Press, vol. 6(1), pages 55-69, January.
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  1. Jens Hilscher & Yves Nosbusch, 2007. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Money Macro and Finance (MMF) Research Group Conference 2006 114, Money Macro and Finance Research Group, revised 24 Apr 2007. [Downloadable!]
  2. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank. [Downloadable!]
  4. Goldstein, Morris, 1995. "Coping with too much of a good thing : policy responses for large capital inflows in developing countries," Policy Research Working Paper Series 1507, The World Bank. [Downloadable!]
  5. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank. [Downloadable!]
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