Information Spillovers in Sovereign Debt Markets

Cole, Harold L.; Neuhann, Daniel; Ordóñez, Guillermo

doi:10.3386/w22330

Cited by 25 publications

(3 citation statements)

References 22 publications

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“…In addition, this paper complements the theoretical literature on information processing and sovereign default, highlighting the empirical relevance of information flows. Cole et al (2016) show that a model with endogenous information acquisition about economic fundamentals can generate contagion in sovereign bond spreads. Gu and Strangebye (2017) study costly information acquisition for a single government bond and show that the sovereign bond spread exhibits significant timevariation in its volatility.…”

Section: Introductionmentioning

confidence: 95%

Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s

Traum

2019

SSRN Journal

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Section: Introductionmentioning

confidence: 95%

Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s

Traum

2019

SSRN Journal

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“…Most importantly, they are not consistent with the idea of lump-sum default costs. Most dynamic general equilibrium models with defaultable debt assume fixed output costs of a default (for example Aguiar and Gopinath, 2006;Yue, 2010;Arellano and Ramanarayanan, 2012;Hatchondo and Martinez, 2012;Chatterjee and Eyigungor, 2012;Hatchondo et al, 2014;Aguiar et al, 2013;Cole et al, 2016, to name just a few). For calibration purposes, this literature often uses an output loss of two percent in default years.…”

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confidence: 99%

The output costs of hard and soft sovereign default

Trebesch¹,

Zabel

2017

European Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. How costly are sovereign debt crises? In this paper we study output losses during sovereign default and debt renegotiation episodes since 1980. In contrast to previous work, we account for the severity of default and not only for its occurrence. Specifically, we distinguish between "hard" and "soft" defaults, using new data on debtor payment and negotiation behavior and on the size of haircuts towards private external creditors. We show that hard defaults are associated with a much steeper drop in GDP, of up to ten percent, compared to soft defaults, and address concerns of reverse causality and omitted variable bias. The results question the standard assumption that defaults trigger fixed and lump-sum costs. Instead, our findings are consistent with models assuming proportional output costs of default. Terms of use: Documents in EconStor mayJEL-Codes: F340, F410, H630, G010.

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“…In a follow-up paper (Cole, Neuhann, and Ordonez (2016)) we examine the implications of discriminatory-price auctions within a two-country setting. We use the insights developed here to discuss spillovers of information across countries and the role of secondary markets.…”

Section: Resultsmentioning

confidence: 99%

A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information

2017

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Sovereign bonds are highly divisible, usually of uncertain quality, and auctioned in large lots to a large number of investors. This leads us to assume that no individual bidder can affect the bond price, and to develop a tractable Walrasian theory of Treasury auctions in which investors are asymmetrically informed about the quality of the bond. We characterize the price of the bond for different degrees of asymmetric information, both under discriminatory-price (DP) and uniform-price (UP) protocols. We endogenize information acquisition and show that DP protocols are likely to induce multiple equilibria, one of which features asymmetric information, while UP protocols are unlikely to sustain equilibria with asymmetric information. This result has welfare implications: asymmetric information negatively affects the level, dispersion and volatility of sovereign bond prices, particularly in DP protocols.

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Information Spillovers in Sovereign Debt Markets

Cited by 25 publications

References 22 publications

Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s

Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s

The output costs of hard and soft sovereign default

A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information

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