Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel

Asonuma, Tamon; Chamon, Marcos; Erce, Aitor; Sasahara, Akira

doi:10.2139/ssrn.3456128

Cited by 20 publications

(22 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…As a result, debt settlement and restructuring delays are driven not only by the recovery of repayment capacity (Benjamin and Wright 2013; Bi 2008)-corresponding to recovery of productivity and an associated response of labor in our model-but also the marginal product of public capital. 13 The second driver differentiates our paper from previous studies.…”

Section: Summary Of Theoretical Findingsmentioning

confidence: 80%

Sovereign Debt Overhang, Expenditure Composition and Debt Restructurings

Asonuma

Joo

2020

SSRN Journal

Self Cite

View full text Add to dashboard Cite

Sovereigns' public capital influences sovereign debt crises and resolution. We compile a dataset on public expenditure composition around restructurings with private external creditors. We show that during restructurings, public investment (i) experiences severe decline and slow recovery, (ii) differs from public consumption and transfers, (iii) reduces share in public expenditure, and (iv) relates with restructuring delays. We develop a theoretical model of defaultable debt that embeds endogenous public capital accumulation, expenditure composition, production and multi-round debt renegotiations. The model quantitatively shows severe decline and slow recovery in public investment-"sovereign debt overhang"-delay debt settlement. Data support these theoretical predictions.

show abstract

Section: Summary Of Theoretical Findingsmentioning

confidence: 80%

Sovereign Debt Overhang, Expenditure Composition and Debt Restructurings

Asonuma

Joo

2020

SSRN Journal

Self Cite

View full text Add to dashboard Cite

show abstract

“…9 One way to interpret this is that a default disrupts the domestic financial sector, by reducing banks' wealth and by reducing banks' access to liquid assets. Previous studies including Perez (2015), Borensztein and Panizza (2009), Brutti (2011), and Asonuma et al (2018) show that a country's default leads to a substantial decline in domestic production due to a disruption of its domestic financial sector.…”

Section: The Sovereignmentioning

confidence: 97%

Gains from Trade and the Sovereign Bond Market

Kikkawa

Sasahara

2018

SSRN Journal

Self Cite

View full text Add to dashboard Cite

Increasing international flows of goods, services, and financial assets have been shown to increase a country's welfare through various channels. This paper studies the interaction between a country's welfare gains from international trade and its sovereign's access to bond markets. We do so by incorporating a sovereign bond market into a simple Armington (1969)'s trade model. While standard trade models suggest surprisingly small gains from trade, our model implies that introducing channels through a sovereign bond market greatly magnifies the gains from trade.

show abstract

“…9 One way to interpret this is that a default disrupts the domestic financial sector, by reducing banks' wealth and by reducing banks' access to liquid assets. Previous studies including Perez (2015), Borensztein and Panizza (2009), Brutti (2011), and Asonuma et al (2018 show that a country's default leads to a substantial decline in domestic production due to a disruption of its domestic financial sector.…”

Section: The Sovereignmentioning

confidence: 99%