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The Maturity and Payment Schedule of Sovereign Debt

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  • Yan Bai
  • Seon Tae Kim
  • Gabriel P. Mihalache

Abstract

This paper studies the maturity and stream of payments of sovereign debt. Using Bloomberg bond data for eleven emerging economies, we document that countries react to crises by issuing debt with shortened maturity but back-load payment schedules. To account for this pattern, we develop a sovereign default model with an endogenous choice of debt maturity and payment schedule. During recessions, the country prefers its payments to be more back-loaded—delaying relatively larger payments—to smooth consumption. However, such a back-loaded schedule is expensive given that later payments carry higher default risk. To reduce borrowing costs, the country optimally shortens maturity. When calibrated to the Brazilian data, the model can rationalize the observed patterns of maturity and payment schedule, as an optimal trade-off between consumption smoothing and endogenous borrowing cost.

Suggested Citation

  • Yan Bai & Seon Tae Kim & Gabriel P. Mihalache, 2015. "The Maturity and Payment Schedule of Sovereign Debt," NBER Working Papers 20896, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20896
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    References listed on IDEAS

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    Cited by:

    1. Matteo Crosignani & Miguel Faria-e-Castro & Luís Fonseca, 2016. "The (unintended?) consequences of the largest liquidity injection ever," ESRB Working Paper Series 31, European Systemic Risk Board.
    2. repec:eee:macchp:v2-1697 is not listed on IDEAS
    3. Horacio Sapriza & Emircan Yurdagul & Juan Sanchez, 2014. "Sovereign default and the choice of maturity," 2014 Meeting Papers 799, Society for Economic Dynamics.
    4. Luís Fonseca & Miguel Faria-e-Castro & Matteo Crosignani, 2015. "Central Bank Interventions, Demand for Collateral, and Sovereign Borrowing Costs," Working Papers w201509, Banco de Portugal, Economics and Research Department.
    5. Dvorkin, Maximiliano & Sanchez, Juan M. & Sapriza, Horacio & Yurdagul, Emircan, 2018. "Sovereign Debt Restructurings," Working Papers 2018-13, Federal Reserve Bank of St. Louis.
    6. Alessandro Dovis & Luigi Bocola, 2016. "Self_fulfilling Debt Crises: A Quantitative Analysis," 2016 Meeting Papers 1218, Society for Economic Dynamics.
    7. Eidam, Frederik, 2018. "Gap-filling government debt maturity choice," ZEW Discussion Papers 18-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Aguiar, M. & Chatterjee, S. & Cole, H. & Stangebye, Z., 2016. "Quantitative Models of Sovereign Debt Crises," Handbook of Macroeconomics, Elsevier.
    9. repec:eee:moneco:v:95:y:2018:i:c:p:72-85 is not listed on IDEAS
    10. Gabriel Mihalache, 2017. "Sovereign Default Resolution Through Maturity Extension," Department of Economics Working Papers 17-08, Stony Brook University, Department of Economics.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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