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Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt

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  • Harold L. Cole
  • James P. Dow
  • William B. English

Abstract

This paper develops a simple model of sovereign debt in which defaulting nations are excluded from capital markets and regain access by making partial repayments. This is consistent with the historical evidence that defaulting countries return to international loan markets soon after a settlement, but after varying periods of exclusion.

Suggested Citation

  • Harold L. Cole & James P. Dow & William B. English, 1994. "Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt," Staff Report 180, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:180
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    References listed on IDEAS

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    1. Laves, Walter H. C., 1935. "Foreign Bondholders and American State Debts. By Reginald C. McGrane. (New York: The Macmillan Company. 1935. Pp. vii, 410.)," American Political Science Review, Cambridge University Press, vol. 29(4), pages 686-687, August.
    2. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106, National Bureau of Economic Research, Inc.
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    12. Harold L. Cole & Patrick J. Kehoe, 1991. "Reputation with multiple relationships: reviving reputation models of debt," Staff Report 137, Federal Reserve Bank of Minneapolis.
    13. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-385, May.
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