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Sovereign Defaults and The Political Economy Of Market Reaccess

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  • Mauro Alessandro
  • Guido Sandleris
  • Alejandro Van Der Ghote

Abstract

Following 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.

Suggested Citation

  • Mauro Alessandro & Guido Sandleris & Alejandro Van Der Ghote, 2011. "Sovereign Defaults and The Political Economy Of Market Reaccess," Business School Working Papers 2011-08, Universidad Torcuato Di Tella.
    • Handle: RePEc:udt:wpbsdt:2011-08
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    File URL: http://www.utdt.edu/download.php?fname=_131593844441542900.pdf
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    1. repec:idb:brikps:82321 is not listed on IDEAS
    2. Guido Sandleris, 2016. "The Costs of Sovereign Default: Theory and Empirical Evidence," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-27, April.
    3. Mr. Andrea F Presbitero & Mr. Dhaneshwar Ghura & Mr. Olumuyiwa S Adedeji & Lamin Njie, 2015. "International Sovereign Bonds by Emerging Markets and Developing Economies: Drivers of Issuance and Spreads," IMF Working Papers 2015/275, International Monetary Fund.

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