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Sovereign debt crises: could an international court minimize them?

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  • Aitor Erce

Abstract

This paper discusses the merits of the statutory approach to sovereign debt crises. It presents a model of sovereign debt roll-overs where, in the event of a liquidity crisis, a Sovereign Bankruptcy Court has powers to declare a standstill on debt payments. The model shows the ability of the Court to mitigate the coordination problem inherent to roll-overs in sovereign debt markets. Moreover, the scale of the coordination problem is reduced regardless of the quality of the information handled by the Court. The mere existence of the Court forces investors to focus on its course of action rather than on other investors beliefs. Nonetheless, such an entity might affect negatively countries’ incentives to apply costly policies.

Suggested Citation

  • Aitor Erce, 2013. "Sovereign debt crises: could an international court minimize them?," Globalization and Monetary Policy Institute Working Paper 142, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:142
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    File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0142.pdf
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    14. Aitor Erce, 2013. "Sovereign debt restructurings and the IMF: implications for future official interventions," Globalization and Monetary Policy Institute Working Paper 143, Federal Reserve Bank of Dallas.
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    Keywords

    Bankruptcy ; Globalization;

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