The Costs of Sovereign Default: Evidence from Argentina

Hébert, Benjamin; Schreger, Jesse

doi:10.3386/w22270

Cited by 47 publications

(52 citation statements)

References 9 publications

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“…Hebert and Schreger (2016) cleverly exploit the rulings in the case Republic of Argentina v. NML Capital as exogenous variation of sovereign risk and document large negative effects of sovereign risk on Argentinian stock returns. Bahaj (2019) uses a narrative high-frequency approach to identify plausibly exogenous variation in sovereign risk.…”

mentioning

confidence: 99%

Sovereign Default Risk and Firm Heterogeneity

Arellano

Bai²,

Bocola³

2019

Preprint

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This paper measures the output costs of sovereign risk by combining a sovereign debt model with firm-and bank-level data. In our framework, an increase in sovereign risk lowers the price of government debt and has an adverse impact on banks' balance sheets, disrupting their ability to finance firms. Importantly, firms are not equally affected by these developments: those that have greater financing needs and borrow from banks that are more exposed to government debt cut their production the most in a debt crisis. We show that the response of aggregate output to an increase in sovereign risk depends on these cross-sectional firm-level elasticities. We use Italian data to measure them and parameterize the model to match the cross-sectional facts. In counterfactual analysis, we find that heightened sovereign risk was responsible for one-third of the observed output decline during the 2011-2012 crisis in Italy.

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confidence: 99%

Sovereign Default Risk and Firm Heterogeneity

Arellano

Bai²,

Bocola³

2019

Preprint

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“…Last, our paper belongs in the literature started by Manova (2012), Mendoza and Yue (2012), and Gopinath and Neiman (2014) who study the amplification effects of financial crises and sovereign defaults via a restriction on trade flows. 7 In a recent paper, Hébert and Schreger (2017) estimate empirically the costs of a sovereign default. They use United States court rulings against the Argentine government to identify exogenous default shocks and document the negative effect of default on the value of the small set of Argentine publicly traded firms.…”

Section: Literature Reviewmentioning

confidence: 99%

Relationship Networks in Banking Around a Sovereign Default and Currency Crisis

D’Erasmo

Boedo

Olivero

et al. 2019

Working Paper (Federal Reserve Bank of Philadelphia)

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We study how banks' exposure to a sovereign crisis gets transmitted onto the corporate sector. To do so we use data on the universe of banks and firms in Argentina during the crisis of 2001. We build a model characterized by matching frictions in which firms establish (long-term) relationships with banks that are subject to balance sheet disruptions. Credit relationships with banks more exposed to the crisis suffer the most. However, this relationship-level effect overstates the true cost of the crisis since profitable firms (e.g., exporters after a devaluation) might find it optimal to switch lenders, reducing the negative impact on overall credit and activity. Using linked bank-firm and firm-level data we find evidence largely consistent with our theory.

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“…As a result, we will present our bootstrap confidence intervals in part (b). Hébert and Schreger (2016), we implement the bootstrap procedure by Horowitz (2001) to calculate confidence intervals. This robustness check is especially important for the results of high-yield bonds because they are not normally distributed, as shown in part (a).…”

Section: Appendix B: Dealing With the Small Sample Problemmentioning

confidence: 99%