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Sovereign defaults at home and abroad

Author

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  • Mattia Picarelli

Abstract

We systematically compare sovereign defaults on debt issued externally and domestically. Defaults at home and abroad are equally frequent, and governments often default selectively. Compared to domestic defaults, external defaults are larger and take longer to resolve. Both external and domestic defaults are often resolved through maturity extensions and coupon reductions. Face value reductions are infrequent, especially as part of domestic restructurings. Yet, domestic defaults are more punitive, as they are associated with larger creditor losses. We also document that domestic and external sovereign defaults occur in markedly different macro-financial, political and geo-economic environments. Our stylised facts inform a growing theoretical literature concerned with sovereign defaults in the presence of domestic debt markets.

Suggested Citation

  • Mattia Picarelli, 2024. "Sovereign defaults at home and abroad," Working Papers 60, European Stability Mechanism.
    • Handle: RePEc:stm:wpaper:60
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    File URL: https://www.esm.europa.eu/system/files/document/2024-04/WP%2060.pdf
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    More about this item

    Keywords

    Public debt; sovereign default; domestic market; external market; stylised facts; theory.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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