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Sovereign Defaults at Home and Abroad

Author

Listed:
  • Erce, Aitor
  • Picarelli, Mattia
  • Mallucci, Enrico

Abstract

We systematically compare sovereign defaults on domestic and external debt markets. Domestic defaults involve smaller debt quantities and are resolved faster; nonetheless, both types of default deliver similar creditor losses. Domestic and external defaults often involve only a fraction of outstanding debt and are routinely resolved using maturity extensions or coupon reductions, rather than through face value reductions. Governments default at home and abroad selectively, with different types of default occurring in different macro-financial and political environments. Our findings challenge key assumptions used in the theoretical literature and provide empirical guidance for the improved calibration of sovereign default models.

Suggested Citation

  • Erce, Aitor & Picarelli, Mattia & Mallucci, Enrico, 2024. "Sovereign Defaults at Home and Abroad," CEPR Discussion Papers 18739, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:18739
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    Keywords

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    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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