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Policy Interventions in Sovereign Debt Restructurings

Author

Listed:
  • Maximiliano Dvorkin
  • Juan M. Sanchez
  • Horacio Sapriza
  • Emircan Yurdagul

Abstract

The wave of sovereign defaults in the early 1980s and the string of debt crises in the decades that followed have fostered proposals involving policy interventions in sovereign debt restructurings. A key question about these proposals that has proved hard to handle is how they in influence the behavior of creditors and debtors. We address such challenge by incorporating these policy proposals into a quantitative model in the tradition of Eaton and Gersovitz (1981) that includes renegotiation in sovereign debt restructurings. Critically, the model also endogenizes the choice of debt maturity, an essential aspect of sovereign defaults and restructurings. We evaluate several policy interventions, and we identify the crucial features that matter to improve the outcome of distressed debt restructurings and reduce the frequency of debt distress events.

Suggested Citation

  • Maximiliano Dvorkin & Juan M. Sanchez & Horacio Sapriza & Emircan Yurdagul, 2019. "Policy Interventions in Sovereign Debt Restructurings," Working Papers 2019-36, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2019-036
    DOI: 10.20955/wp.2019.036
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    References listed on IDEAS

    as
    1. Juan Carlos Hatchondo & Leonardo Martinez & César Sosa-Padilla, 2016. "Debt Dilution and Sovereign Default Risk," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1383-1422.
    2. Hatchondo, Juan Carlos & Martinez, Leonardo & Sosa Padilla, César, 2014. "Voluntary sovereign debt exchanges," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 32-50.
    3. Federico Sturzenegger and Jeromin Zettelmeyer, 2006. "Has the Legal Threat to Sovereign Debt Restructuring Become Real?," Business School Working Papers legalthreat, Universidad Torcuato Di Tella.
    4. Maximiliano Dvorkin & Juan M. Sanchez & Horacio Sapriza & Emircan Yurdagul, 2018. "Sovereign Debt Restructurings," Working Papers 2018-13, Federal Reserve Bank of St. Louis.
    5. Juan Passadore, 2015. "Illiquidity in Sovereign Debt Markets," 2015 Meeting Papers 191, Society for Economic Dynamics.
    6. Sánchez, Juan M. & Sapriza, Horacio & Yurdagul, Emircan, 2018. "Sovereign default and maturity choice," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 72-85.
    7. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Crises; Default; Sovereign Debt; Restructuring; Rescheduling; Country Risk; Maturity; International Monetary Fund; Dynamic Discrete Choice;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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