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Renegotiation, Collective Action Clauses and Sovereign Debt Markets

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  • Jose Wynne
  • Federico Weinschelbaum

Abstract

Collective action clauses (CACs) are provisions specifying that a supermajority of bondholders can change the terms of a bond. We study how CACs determine governments' fiscal incentives, sovereign bond prices and default probabilities in environments with and without contingent debt and IMF presence. We claim that CACs are likely to be an irrelevant dimension of debt contracts in current sovereign debt markets because of the variety of instruments utilized by sovereigns and the implicit IMF guarantee. Nonetheless, under a new international bankruptcy regime like that recently proposed by the IMF, CACs can increase significantly the cost of borrowing for sovereigns, contrary to what is suggested in previous empirical literature

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 7.

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Date of creation: 2004
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Handle: RePEc:red:sed004:7

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Keywords: Sovereign Debt; Collective Action Clauses; Renegotiation; Moral Hazard; International Bankrucpty Court;

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  1. Barry Eichengreen & Kenneth Kletzer & Ashoka Mody, 2003. "Crisis resolution: next steps," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 03-05, Federal Reserve Bank of San Francisco.
  2. Jeromin Zettelmeyer & Kenneth Rogoff, 2002. "Bankruptcy Procedures for Sovereigns," IMF Working Papers 02/133, International Monetary Fund.
  3. Ghosal, Sayantan & Miller, Marcus, 2003. "Coordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3729, C.E.P.R. Discussion Papers.
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  6. Gai, Prasanna & Hayes, Simon & Shin, Hyun Song, 2004. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," Journal of International Economics, Elsevier, Elsevier, vol. 62(2), pages 245-262, March.
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Blog mentions

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  1. Just What Is It that Makes Them So Different, So Appealing?
    by ELY in Blog de Eduardo Levy Yeyati on 2010-03-23 23:59:00
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Cited by:
  1. Rohan Pitchford & Mark L. J. Wright, 2010. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," NBER Working Papers 16632, National Bureau of Economic Research, Inc.
  2. Prokop, Jacek, 2012. "Bargaining over debt rescheduling," MPRA Paper 44315, University Library of Munich, Germany.
  3. Karel Janda, 2009. "Bankruptcies With Soft Budget Constraint," Manchester School, University of Manchester, vol. 77(4), pages 430-460, 07.
  4. Alfredo Bardozzetti & Davide Dottori, 2013. "Collective action clauses: how do they weigh on sovereigns?," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 897, Bank of Italy, Economic Research and International Relations Area.
  5. Ran Bi, 2008. ""Beneficial" Delays in Debt Restructuring Negotiations," 2008 Meeting Papers 766, Society for Economic Dynamics.
  6. Ghosal, Sayantan & Thampanishvong, Kannika, 2013. "Does strengthening Collective Action Clauses (CACs) help?," Journal of International Economics, Elsevier, Elsevier, vol. 89(1), pages 68-78.
  7. Patrick Bolton & Olivier Jeanne, 2009. "Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 879-902.
  8. Canuto, Otaviano & Pinto, Brian & Prasad, Mona, 2012. "Orderly sovereign debt restructuring : missing in action !," Policy Research Working Paper Series 6054, The World Bank.
  9. Vivian Z. Yue, 2005. "Sovereign Default and Debt Renegotiation," 2005 Meeting Papers, Society for Economic Dynamics 138, Society for Economic Dynamics.
  10. Bai, Yan & Zhang, Jing, 2012. "Duration of sovereign debt renegotiation," Journal of International Economics, Elsevier, Elsevier, vol. 86(2), pages 252-268.
  11. Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201015, Centre for Dynamic Macroeconomic Analysis.
  12. Goderis, Benedikt & Wagner, Wolf, 2009. "Credit Derivatives and Sovereign Debt Crises," MPRA Paper 17314, University Library of Munich, Germany.
  13. Ghosal, Sayantan & Miller, Marcus & Thampanishvong, Kannika, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-100, Scottish Institute for Research in Economics (SIRE).
  14. Roberto Cortes Conde, 2008. "Spanish America Colonial Patterns: The Rio de La Plata," Working Papers, Universidad de San Andres, Departamento de Economia 96, Universidad de San Andres, Departamento de Economia, revised Mar 2008.
  15. Stephen Quinn, 2008. "Securitization of Sovereign Debt: Corporations as a Sovereign Debt Restructuring Mechanism in Britain, 1694-1750," Working Papers, Texas Christian University, Department of Economics 200701, Texas Christian University, Department of Economics.
  16. Bardozzetti, Alfredo & Dottori, Davide, 2014. "Collective action clauses: How do they affect sovereign bond yields?," Journal of International Economics, Elsevier, Elsevier, vol. 92(2), pages 286-303.

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