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Sovereign debt, default and renegotiation

  • Rohan Pitchford
  • Mark Wright

    ()

    (Economics Stanford University)

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

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 331.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:331
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htmEmail:


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