Evaluating debt repurchases What are the alternatives to investment?
In this paper a general model of debt repurchases is built which reconciles most of the points raised in the literature on debt buybacks. It is shown that results previously found in the literature can be obtained from this general model and are strongly dependant on assumptions made on its parameters. The condition that determines whether or not buybacks are an attractive solution from the point of the debtor nations is derived. Additionally it is shown that if there are other assets safer than investment, a debt buyback will always lead to an increase in investment and a reduction in the holdings of such other assets. This result holds independently of the source of the resources used for the buyback, unlike previous suggestions. With a buyback out of current resources, optimal reserves levels fall by more than what is used for the buyback, releasing extra resources for investment purposes, while current consumption does not fall. (JEL F34)
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991.
"The Pure Theory of Country Risk,"
in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435
National Bureau of Economic Research, Inc.
- Jeremy Bulow & Kenneth Rogoff, 1988. "The Buyback Boondoggle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 675-704.
- Schwartz, Eduardo S & Zurita, Salvador, 1992. " Sovereign Debt: Optimal Contract, Underinvestment, and Forgiveness," Journal of Finance, American Finance Association, vol. 47(3), pages 981-1004, July.
- Bulow, J. & Rogoff, K., 1988.
"Sovereign Debt: Is To Forgive To Forget?,"
411, Stockholm - International Economic Studies.
- Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
- Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Working papers 8813, Wisconsin Madison - Social Systems.
- Jeremy I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt: Is To Forgive To Forget?," NBER Working Papers 2623, National Bureau of Economic Research, Inc.
- Froot, Kenneth A, 1989.
"Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
- Kenneth A. Froot, 1988. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," NBER Working Papers 2675, National Bureau of Economic Research, Inc.
- Goldberg, L. & Spiegel, Mark M., 1989.
"Debt Write-Downs And Debt-Equity Swaps In A Two Sector Model,"
89-19, C.V. Starr Center for Applied Economics, New York University.
- Goldberg, Linda & Spiegel, Mark M., 1992. "Debt write-downs and debt--equity swaps in a two-sector model," Journal of International Economics, Elsevier, vol. 33(3-4), pages 267-283, November.
- Helpman, Elhanan, 1989.
"The Simple Analytics of Debt-Equity Swaps,"
American Economic Review,
American Economic Association, vol. 79(3), pages 440-51, June.
- Jeremy Bulow & Kenneth Rogoff, 1991.
"Sovereign Debt Repurchases: No Cure for Overhang,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 106(4), pages 1219-1235.
- Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
- Sachs, J.D., 1989. "New Approaches To The Latin American Debt Crisis," Princeton Studies in International Economics 174, International Economics Section, Departement of Economics Princeton University,.
- Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
- Van Wijnbergen, Sweder, 1990. "Cash/debt buy-backs and the insurance value of reserves," Journal of International Economics, Elsevier, vol. 29(1-2), pages 123-131, August.
When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:40:y:1996:i:3-4:p:477-494. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.