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A Pecking Order Theory of Sovereign Default

Author

Listed:
  • Mark Wright

    (Federal Reserve Bank of Chicago)

  • Christoph Trebesch

    (University of Munich)

  • Matthias Schlegl

    (University of Munich)

Abstract

Do sovereign debtors discriminate between debtors in the event of a default? If so, how will this affect the character of future defaults? And, what does this mean for policymakers? In this paper we exploit a unique database of arrears accumulation by debtor country and creditor to characterize the level of creditor discrimination during a sovereign default. We find, as expected, that the IMF and bondholders are the beneficiaries of discrimination. Unexpectedly, we find that trade creditors are most discriminated against. We then present a theoretical framework within which these findings can be rationalized and use it to assess how policymakers can influence a debtors decision to default.

Suggested Citation

  • Mark Wright & Christoph Trebesch & Matthias Schlegl, 2015. "A Pecking Order Theory of Sovereign Default," 2015 Meeting Papers 994, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:994
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