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A Constant Recontracting Model of Sovereign Debt

Jeremy I. Bulow and Kenneth Rogoff

No 2088, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Few sovereign debtors have repudiated their obligations entirely. But despite the significant sanctions at the disposal of lenders, many borrowers have been able to consistently negotiate for reduced repayments. This paper presents a model of the on-going bargaining process that determines repayment levels. We derive a bargaining equilibrium in which countries with large debts achieve negotiated partial default. The ability to credibly threaten more draconian penalties in the event of repudiation may be of no benefit to lenders. Furthermore, unanticipated increases in world interest rates may actually help the borrowers by making lenders more inpatient for a negotiated settlement. Finally, Western governments may be induced to make payments to facilitate reschedulings even though efficient agreements will be reached without their intervention.

Date: 1986-12
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Journal of Political Economy, Vol. 95, No. 6, December 1988.

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Related works:
Journal Article: A Constant Recontracting Model of Sovereign Debt (1989) Downloads
Working Paper: A Constant Recontracting Model of Sovereign Debt (1989) Downloads
Working Paper: A Constant Recontracting Model Of Sovereign Debt (1988) Downloads
Working Paper: A Constant Recontracting Model of Sovereign Debt (1986) Downloads
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