Output Costs of Sovereign Default

Paoli, Bianca De; Hoggarth, Glenn; Saporta, Victoria; Kolb, Robert

doi:10.1002/9781118267073.ch3

Cited by 32 publications

(37 citation statements)

References 11 publications

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“…Banks will have large direct and indirect exposure to their sovereigns -through holdings of government bonds, derivative contracts with their sovereign, as well as huge exposure to the real economy, which is likely to enter recession following a sovereign crisis. Domestic banks will often increase those holdings of government paper in the lead-up to a crisis when demand from overseas investors starts to dry up (De Paoli, Hoggarth and Saporta, 2006). Concerns around the health of sovereigns can start to have real consequences for the banking system even before those pressures crystallize into a full-blown sovereign debt crisis.…”

Section: The Link Between Sovereign and Banking Crisesmentioning

confidence: 98%

Macroprudential Policy

Barwell¹

2013

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Section: The Link Between Sovereign and Banking Crisesmentioning

confidence: 98%

Macroprudential Policy

Barwell¹

2013

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“…The benefit we have considered -a reduced likelihood of default -certainly seems important. If De Paoli et al (2006) are to be believed, the output cost of default can be very large and persistent, even if they are rare. But the potential cost -a higher interest burden in normal times to compensate investors for taking on GDP volatility -also seems relevant if it results in higher taxes or lower (useful) government spending.…”

Section: Welfarementioning

confidence: 98%

Life After Debt

Stiglitz¹,

Heymann²

2014

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A non-profit organization with purely scientific aims, the International Economic Association (IEA) was founded in 1950. Its basic purpose is the development of economics as an intellectual discipline, recognizing a diversity of problems, systems and values in the world and taking note of methodological diversities. Since its creation, the IEA has sought to fulfil that purpose by promoting mutual understanding among economists through the organization of scientific meetings and common research programmes. The publications that comprise the series, are the explorations of these matters discussed, with special attention paid to issues of economies in transition and in the course of development.

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“…The credit history expresses number of debt renegotiations the country has experienced in the past. 13 The reason why we assume multi-state credit history rather than twostate credit history as in Yue (2010) is to analyze how the outcomes of past debt renegotiations associated with defaults a¤ect the probability of next default. Moreover, we assume that the credit history reverts with exogenous probability conditional on that the country chooses to pay the spread returns after defaults.…”

Section: General Pointsmentioning

confidence: 99%

Serial Default and Debt Renegotiation

Asonuma

2012

SSRN Journal

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Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same debt-to-GDP ratio. This paper explains this stylized fact within a dynamic stochastic general equilibrium framework by explicitly modeling renegotiations between a defaulting country and its creditors.The quantitative analysis of the model reveals that the equilibrium probability of default for a given debt-to-GDP level is weakly increasing with the number of past defaults, consistent with empirical observations. The equilibrium of the model also accords with an additional observed fact: a country for which default terms require less than a 100 percent recovery rate tends to pay a higher rate of return (relative to a risk-free rate) on subsequently issued debt than do defaulting countries that agree to a full recovery rate. JEL Classi…cation Codes: E43; F32; F34; G12

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Output Costs of Sovereign Default

Cited by 32 publications

References 11 publications

Macroprudential Policy

Macroprudential Policy

Life After Debt

Serial Default and Debt Renegotiation

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