Sovereign Defaults, Domestic Credit Market Institutions and Credit to the Private Sector
During sovereign debt crises, even after controlling for the decline in relevant macroeconomic variables, both foreign and domestic credit to the private sector decline. This paper presents a mechanism through which sovereign defaults can lead to this decline, even if domestic agents do not hold government debt. The mechanism highlights the interaction between sovereign defaults, domestic credit market institutions and firms’ collateral constraints. In developing countries firms are usually collateral constrained. In a model with endogenous sovereign debt, a sovereign default, through its effect on expectations about fundamentals, affects the value of the firms’ international and domestic collateral, which limits the availability of foreign and domestic credit. The model also shows that, by attracting private capital flows to the private sector, stronger domestic financial institutions reduce governments’ incentives to default, which, in turn, facilitate public borrowing.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: Miñones 2177 - (1428) Buenos Aires|
Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reinhart, Carmen, 2004.
"Debt intolerance: Executive summary,"
13398, University Library of Munich, Germany.
- Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
- Bengt Holmstrom & Jean Tirole, 1998.
"Private and Public Supply of Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 106(1), pages 1-40, February.
- Bengt Holmstrom & Jean Tirole, 1996. "Private and Public Supply of Liquidity," NBER Working Papers 5817, National Bureau of Economic Research, Inc.
- Holmstrom, B & Tirole, J, 1996. "Private and Public Supply of Liquidity," Working papers 96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
- repec:oup:restud:v:76:y:2009:i:4:p:1297-1320 is not listed on IDEAS
- Sandleris, Guido, 2008.
"Sovereign defaults: Information, investment and credit,"
Journal of International Economics,
Elsevier, vol. 76(2), pages 267-275, December.
- Guido Sandleris, 2008. "Sovereign Defaults: Information, Investment and Credit," Business School Working Papers 2008-04, Universidad Torcuato Di Tella.
- Guido M. Sandleris, 2005. "Sovereign Defaults: Information, Investment and Credit," 2005 Meeting Papers 21, Society for Economic Dynamics.
- Fernando A. Broner & Jaume Ventura, 2010.
"Rethinking the Effects of Financial Liberalization,"
NBER Working Papers
16640, National Bureau of Economic Research, Inc.
- Fernando Broner and Jaume Ventura, 2010. "Rethinking the Effects of Financial Liberalization," Working Papers 509, Barcelona Graduate School of Economics.
- Broner, Fernando A & Ventura, Jaume, 2010. "Rethinking the Effects of Financial Liberalization," CEPR Discussion Papers 8171, C.E.P.R. Discussion Papers.
- Jaume Ventura & Fernando Broner, 2008. "Rethinking the effects of financial liberalization," 2008 Meeting Papers 747, Society for Economic Dynamics.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Fernando Broner & Jaume Ventura, 2010. "Rethinking the effects of financial globalization," Economics Working Papers 1128, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2015.
- repec:att:wimass:8813 is not listed on IDEAS
- Oren Sussman & Alexander Guembel, 2005. "Sovereign Debt Without Default Penalties," OFRC Working Papers Series 2005fe17, Oxford Financial Research Centre.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008.
"Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation,"
The Review of Economics and Statistics,
MIT Press, vol. 90(2), pages 347-368, May.
- Laura Alfaro & Sebnem Kalemli-Ozcan, 2004. "Why doesn't capital flow from rich to poor countries? An empirical investigation," 2004 Meeting Papers 53, Society for Economic Dynamics.
- Sebnem Kalemli-Ozcan & Laura Alfaro & Vadym Volosovych, 2003. "Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation," Working Papers 2003-01, Department of Economics, University of Houston.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," NBER Working Papers 11901, National Bureau of Economic Research, Inc.
- Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
- Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies; How Much is theprivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund.
- Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001.
"International and domestic collateral constraints in a model of emerging market crises,"
Journal of Monetary Economics,
Elsevier, vol. 48(3), pages 513-548, December.
- Ricardo Caballero & Arvind Krishnamurthy, 2000. "International and Domestic Collateral Constraints in a Model of Emerging Market Crises," NBER Working Papers 7971, National Bureau of Economic Research, Inc.
- Jeremy Bulow & Kenneth Rogoff, 1998.
"Sovereign Debt: Is to Forgive to Forget,"
Levine's Working Paper Archive
209, David K. Levine.
- Carlos O. Arteta & Galina Hale, 2006.
"Sovereign debt crises and credit to the private sector,"
Working Paper Series
2006-21, Federal Reserve Bank of San Francisco.
- Arteta, Carlos & Hale, Galina, 2008. "Sovereign debt crises and credit to the private sector," Journal of International Economics, Elsevier, vol. 74(1), pages 53-69, January.
- Carlos O. Arteta & Galina Hale, 2006. "Sovereign debt crises and credit to the private sector," International Finance Discussion Papers 878, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:udt:wpbsdt:2010-01. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicolás Del Ponte)
If references are entirely missing, you can add them using this form.