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A Constant Recontracting Model of Sovereign Debt

  • Bulow, Jeremy
  • Rogoff, Kenneth S.

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaults or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interests of different lenders and of banks and creditor country taxpayers.

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File URL: http://dash.harvard.edu/bitstream/handle/1/12491028/Rogoff_ConstantRecontracting.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 12491028.

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Date of creation: 1989
Date of revision:
Publication status: Published in Journal of Political Economy -Chicago-
Handle: RePEc:hrv:faseco:12491028
Contact details of provider: Postal: Littauer Center, Cambridge, MA 02138
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Web page: http://www.economics.harvard.edu/

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  1. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472 National Bureau of Economic Research, Inc.
  2. Sebastian Edwards, 1985. "The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis of Developing Countries' Foreign Borrowing," NBER Working Papers 1689, National Bureau of Economic Research, Inc.
  3. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1986. "The Pure Theory of Country Risk," NBER Working Papers 1894, National Bureau of Economic Research, Inc.
  4. Steven C. Kyle & Jeffrey Sachs, 1984. "Developing Country Debt and the Market Value of Large Commercial Banks," NBER Working Papers 1470, National Bureau of Economic Research, Inc.
  5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  6. Carlos F. Diaz-Alejandro, 1983. "Some Aspects of the 1982-83 Brazilian Payments Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 515-552.
  7. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  8. 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.
  9. Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 207-11, January.
  10. Barry Eichengreen, 1987. "Til Debt Do Us Part: The U.S. Capital Market and Foreign Lending, 1920-1955," NBER Working Papers 2394, National Bureau of Economic Research, Inc.
  11. Moran, Theodore H., 1973. "Transnational Strategies of Protection and Defense by Multinational Corporations: Spreading the Risk and Raising the Cost for Nationalization in Natural Resources," International Organization, Cambridge University Press, vol. 27(02), pages 273-287, March.
  12. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 345-64, July.
  13. Eaton, Jonathan & Taylor, Lance, 1986. "Developing country finance and debt," Journal of Development Economics, Elsevier, vol. 22(1), pages 209-265, June.
  14. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  15. Dixit, Avinash, 1987. " Issues of Strategic Trade Policy for Small Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(3), pages 349-67.
  16. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 1990. "Economic Sanctions Reconsidered: 2nd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 82.
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