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Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises

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  • Hyun Song Shin

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  • Prasanna Gai
  • Simon Hayes

Abstract

Recent debate on the reform of the international financial architecture has highlighted the potentially important role of the official sector in crisis management. We examine how such public intervention in sovereign debt crises affects efficiency, exante and ex post. Our results shed light on the scale of capital inflows in such a regime, and we establish conditions under which this leads to an improvement in debtor country welfare. The efficacy of measure such as officially sanctioned stays on creditor litigation depend critically on the quality of public sector surveillance and the size of the costs of sovereign debt crises.

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  • Hyun Song Shin & Prasanna Gai & Simon Hayes, 2001. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," FMG Discussion Papers dp390, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp390
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    References listed on IDEAS

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    Cited by:

    1. Weinschelbaum, Federico & Wynne, Jose, 2005. "Renegotiation, collective action clauses and sovereign debt markets," Journal of International Economics, Elsevier, vol. 67(1), pages 47-72, September.
    2. Ghosal, Sayantan & Thampanishvong, Kannika, 2013. "Does strengthening Collective Action Clauses (CACs) help?," Journal of International Economics, Elsevier, vol. 89(1), pages 68-78.
    3. Benjamin Martin & Adrian Penalver, 2003. "The effect of payments standstills on yields and the maturity structure of international debt," Bank of England working papers 184, Bank of England.
    4. Marcus Miller & Dania Thomas, 2007. "Sovereign Debt Restructuring: The Judge, the Vultures and Creditor Rights," The World Economy, Wiley Blackwell, vol. 30(10), pages 1491-1509, October.
    5. Enderlein, Henrik & Trebesch, Christoph & von Daniels, Laura, 2012. "Sovereign debt disputes: A database on government coerciveness during debt crises," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 250-266.
    6. Julian Schumacher & Christoph Trebesch & Henrik Enderlein, 2015. "What Explains Sovereign Debt Litigation?," CESifo Working Paper Series 5319, CESifo Group Munich.
    7. Michael P. Dooley & Sujata Verma, 2003. "Rescue Packages and Output Losses Following Crises," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 125-186 National Bureau of Economic Research, Inc.
    8. Se-Jik Kim, 2004. "Timing of International Bailouts," IMF Working Papers 04/9, International Monetary Fund.
    9. 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.
    10. Gai, Prasanna & Shin, Hyun Song, 2004. "Debt maturity structure with pre-emptive creditors," Economics Letters, Elsevier, vol. 85(2), pages 195-200, November.
    11. Schumacher, Julian & Chamon, Marcos & Trebesch, Christoph, 2015. "Foreign Law Bonds: Can They Reduce Sovereign Borrowing Costs?," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113199, Verein für Socialpolitik / German Economic Association.
    12. Adrian Penalver, 2004. "How can the IMF catalyse private capital flows? A model," Bank of England working papers 215, Bank of England.
    13. Tillmann, Peter, 2005. "Private sector involvement in the resolution of financial crises: How do markets react?," Journal of Development Economics, Elsevier, vol. 78(1), pages 114-132, October.
    14. Goderis, Benedikt & Wagner, Wolf, 2009. "Credit Derivatives and Sovereign Debt Crises," MPRA Paper 17314, University Library of Munich, Germany.
    15. 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.
    16. Prasanna Gai & Nicholas Vause, 2003. "Sovereign debt workouts with the IMF as delegated monitor - a common agency approach," Bank of England working papers 187, Bank of England.
    17. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies; How Much is theprivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund.
    18. Robert Flood & Nancy Marion, 2009. "Getting Shut Out of the International Capital Markets: It Doesn't Take Much ," Review of International Economics, Wiley Blackwell, vol. 17(5), pages 879-889, November.
    19. Aitor Erce-Domínguez, 2006. "Using standstills to manage sovereign debt crises," Working Papers 0636, Banco de España;Working Papers Homepage.
    20. Prasanna Gai, 2008. "Discussion of 'Promoting Liquidity: Why and How?'," RBA Annual Conference Volume,in: Paul Bloxham & Christopher Kent (ed.), Lessons from the Financial Turmoil of 2007 and 2008 Reserve Bank of Australia.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance
    • J1 - Labor and Demographic Economics - - Demographic Economics

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