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Sovereign debt, default and renegotiation

Author

Listed:
  • Rohan Pitchford
  • Mark Wright

    () (Economics Stanford University)

Abstract

Can the international financial system be reformed to reduce the costs of sovereign defaults? What would the consequences of such ex post reforms be on the ex ante level of sovereign borrowing? This paper presents a simple model in which sovereign debt restructuring negotiations are plagued by limited commitment issues that lead to a holdout problem. Delay in bargaining produces costs ex post that may improve repayment incentives ex ante. The optimal level of holdout is derived, and the framework is used to evaluate a number of existing policy proposals

Suggested Citation

  • Rohan Pitchford & Mark Wright, 2006. "Sovereign debt, default and renegotiation," 2006 Meeting Papers 331, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:331
    as

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    More about this item

    Keywords

    sovereign debt; default;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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