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

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

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.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 180.

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Date of creation: 1994
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Handle: RePEc:fip:fedmsr:180
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  1. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Papers 411, Stockholm - International Economic Studies.
  2. Fernandez, R. & Rosenthal, R.W., 1988. "Sovereign-Debt Renegotiations: A Strtegic Analysis," Papers 85, Boston University - Center for Latin American Development Studies.
  3. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
  4. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
  5. Peter M. Garber, 1991. "Alexander Hamilton's Market Based Debt Reduction Plan," NBER Working Papers 3597, National Bureau of Economic Research, Inc.
  6. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  7. 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 365-85, May.
  8. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  9. Kahn, J.A., 1989. "Credible Borrowing Constraints With Renegotiable Debt," RCER Working Papers 175, University of Rochester - Center for Economic Research (RCER).
  10. Herschel I. Grossman, 1987. "Lending to an Insecure Sovereign," NBER Working Papers 2443, National Bureau of Economic Research, Inc.
  11. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc.
    • 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.
  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. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
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