Sovereign Defaults and The Political Economy Of Market Reaccess
AbstractFollowing a sovereign default, governments are usually unable to borrow from international credit markets for some time. The period of "exclusion" has varied from more than twenty years following some default events to less than a year in others. Using a unique dataset on sovereign bond issuances and syndicated bank loans between 1980 and 2000, this paper studies empirically the determinants of the duration of exclusion following a sovereign default and presents a DSGE model of endogeneous sovereign borrowing that rationalizes our key empirical findings. In particular, we find that countries either reaccess the markets in the first years after a default or have to wait a much longer time to do it. We also find that political stability significantly increases the chances of reaccessing the market in any given period after the default. Our political economy model of market reaccess can match hese two features of the data.
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Bibliographic InfoPaper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number 2011-08.
Length: 32 pages
Date of creation: 2011
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-22 (All new papers)
- NEP-DGE-2011-09-22 (Dynamic General Equilibrium)
- NEP-POL-2011-09-22 (Positive Political Economics)
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- Guido Sandleris, 2012. "The Costs of Sovereign Defaults:Theory and Empirical Evidence," Business School Working Papers 2012-02, Universidad Torcuato Di Tella.
- Inder J. Ruprah & Karl Alexander Melgarejo, 2013. "Don't Talk to Me about Debt. Talk to Me about Growth," IDB Publications 82321, Inter-American Development Bank.
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