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Observing bailout expectations during a total eclipse of the sun

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Author Info
Oscar Bernal () (DULBEA, Université Libre de Bruxelles, Brussels.)
Kim Oosterlinck () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
Ariane Szafarz () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles)

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Abstract

The literature has not reached a consensus yet regarding the existence of sovereign creditor moral hazard. Exploiting an exceptional historical example, this paper proposes an original method to address this issue. As the corona which are observable only during a total eclipse of the sun, market-specific prices of repudiated bonds are observable only when extreme conditions (a war, in this instance) segment the markets. Such events are very rare but insightful as they allow for isolating pure country-specific bailout expectations. The paper shows that bailouts do create creditor moral hazard. Based on an impulse response analysis, the econometric results further emphasize the influence of bailout expectations in sovereign bonds valuation.

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File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp08015.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 08-015.RS.

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Length: 26 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:sol:wpaper:08-015

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Related research
Keywords: bailout; bonds; moral hazard; repudiation; sovereign debt; Soviet; Russia.;

Other versions of this item:

Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
G1 - Financial Economics - - General Financial Markets
N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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References listed on IDEAS
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.:
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    Other versions:
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  14. Oscar Bernal & Jean-Yves Gnabo, 2007. "Talks, financial operations or both? Generalizing central banks’ FX reaction functions," Working Papers DULBEA 07-03.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  16. Ilan Tojerow, 2008. "Industry Wage Differential, Rent Sharing and Gender in Belgium," Working Papers DULBEA 08-20.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  18. Amynah Gangji & Robert Plasman, 2007. "The Matthew effect of unemployment: how does it affect wages in Belgium," Working Papers DULBEA 07-19.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  20. Ariane Szafarz, 2007. "Hiring People-like-Yourself: A Representation of Discrimination on the Job Market," Working Papers DULBEA 07-21.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  21. Michel Beine & Oscar Bernal & Jean-Yves Gnabo & Christelle Lecourt, 2006. "Intervention Policy of the BoJ: A unified approach," Working Papers DULBEA 06-15.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  22. Amynah Gangji & Robert Plasman, 2007. "Microeconomic analysis of unemployment in Belgium ," Working Papers DULBEA 07-20.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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  26. Sîle O'Dorchai, 2008. "Pay inequality in 25 European countries," Working Papers DULBEA 08-06.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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Cited by:
(explanations, 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. Oscar Bernal & Kim Oosterlinck & Ariane Szafarz, 2009. "Observing bailout expectations during a total eclipse of the sun," Working Papers DULBEA 09-01.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
    Other versions:
  2. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," Working Papers DULBEA 09-03.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
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