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Using standstills to manage sovereign debt crises

Author

Listed:
  • Aitor Erce-Domínguez

    () (Banco de España)

Abstract

This paper presents a model analyzing the potential for an International Court with powers to declare standstills to mitigate the coordination problem inherent to roll-overs in sovereign debt markets. It is shown that, regardless of the quality of the information handled by such an Institution, the scale of the coordination problem is reduced since its mere existence forces investors to focus on the Court's course of action rather than on other investors' beliefs. Furthermore, the model shows that, in order to avoid moral hazard, the right of recourse to the Court should be made conditional.

Suggested Citation

  • Aitor Erce-Domínguez, 2006. "Using standstills to manage sovereign debt crises," Working Papers 0636, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0636
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0636e.pdf
    File Function: First version, January 2007
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    References listed on IDEAS

    as
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    5. Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
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    7. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2004. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 87-113.
    8. Andy Haldane, Bank of England & Mark Kruger, Bank of Canada, 2002. "The Resolution of International Financial Crises: Private Finance and Public Funds," Bank of Canada Review, Bank of Canada, vol. 2001(Winter), pages 3-13.
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    11. Chui, Michael & Gai, Prasanna & Haldane, Andrew G., 2002. "Sovereign liquidity crises: Analytics and implications for public policy," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 519-546, March.
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    15. Benjamin Martin & Adrian Penalver, 2003. "The effect of payments standstills on yields and the maturity structure of international debt," Bank of England working papers 184, Bank of England.
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    More about this item

    Keywords

    sovereign debt; liquidity runs; standstills; effort;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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