Debt dilution and seniority in a model of defaultable sovereign debt
An important source of inefficiency in long-term debt contracts is the debt dilution problem, wherein a borrower ignores the adverse impact of new borrowing on the market value of outstanding debt and, therefore, borrows too much and defaults too frequently. A commonly proposed remedy to the debt dilution problem is seniority of debt, wherein creditors who lent first are given priority in any bankruptcy or restructuring proceedings. The goal of this paper is to incorporate seniority in a quantitatively realistic, infinite horizon model of sovereign debt and default and examine, both theoretically and quantitatively, the extent to which seniority can mitigate the debt dilution problem.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: 10 Independence Mall, Philadelphia, PA 19106-1574|
Web page: http://www.philadelphiafed.org/
More information through EDIRC
|Order Information:|| Web: http://www.phil.frb.org/econ/wps/index.html Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Saravia, Diego, 2010.
"On the role and effects of IMF seniority,"
Journal of International Money and Finance,
Elsevier, vol. 29(6), pages 1024-1044, October.
- Diego Saravia, 2004. "On the Role and E ects of IMF Seniority," Econometric Society 2004 Latin American Meetings 131, Econometric Society.
- Diego Saravia, 2007. "On the Role and Effects of IMF Seniority," Documentos de Trabajo 317, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Diego Saravia, 2009. "On The Role and Effects of IMF Seniority," Working Papers Central Bank of Chile 538, Central Bank of Chile.
- Juan Carlos Hatchondo & Leonardo Martinez & Cesar Sosa-Padilla, 2015.
"Debt Dilution and Sovereign Default Risk,"
Caepr Working Papers
2015-012 Classification-, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
- Juan Carlos Hatchondo & Leonardo Martinez, 2012. "Debt dilution and sovereign default risk," Working Paper 10-08, Federal Reserve Bank of Richmond.
- Juan Carlos Hatchondo & Leonardo Martinez & Cesar Sosa-Padilla, 2014. "Debt Dilution and Sovereign Default Risk," Department of Economics Working Papers 2014-06, McMaster University.
- Leonardo Martinez & Cesar Sosa Padilla & Juan Hatchondo, 2012. "Debt dilution and sovereign default risk," 2012 Meeting Papers 974, Society for Economic Dynamics.
- Leonardo Martinez & Juan Carlos Hatchondo & Cesar Sosa Padilla, 2011. "Debt Dilution and Sovereign Default Risk," IMF Working Papers 11/70, International Monetary Fund.
- Satyajit Chatterjee & Burcu Eyigungor, 2009.
"Maturity, indebtedness, and default risk,"
09-2, Federal Reserve Bank of Philadelphia.
- Burcu Eyigungor & Satyajit Chatterjee, 2008. "Maturity, Indebtedness and Default Risk," 2008 Meeting Papers 1001, Society for Economic Dynamics.
- Satyajit Chatterjee & Burcu Eyigungor, 2011. "Maturity, indebtedness, and default risk," Working Papers 11-33, Federal Reserve Bank of Philadelphia.
- Satyajit Chatterjee & Burcu Eyigungor, 2010. "Maturity, indebtedness, and default risk," Working Papers 10-12, Federal Reserve Bank of Philadelphia.
- Satyajit Chatterjee & Burcu Eyigungor, 2009. "Maturity, Indebtedness, and Default Risk," Koç University-TUSIAD Economic Research Forum Working Papers 0901, Koc University-TUSIAD Economic Research Forum.
- Juan Carlos Hatchondo & Leonardo Martinez, 2009.
"Long-duration bonds and sovereign defaults,"
08-02, Federal Reserve Bank of Richmond.
- Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc.
- Eduardo Borensztein & Olivier Jeanne & Paolo Mauro & Jeronimo Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
- Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
- Cole, Harold L. & Kehoe, Timothy J., 1996. "A self-fulfilling model of Mexico's 1994-1995 debt crisis," Journal of International Economics, Elsevier, vol. 41(3-4), pages 309-330, November.
When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:12-14. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul)
If references are entirely missing, you can add them using this form.