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
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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)
Working Paper: A Constant Recontracting Model of Sovereign Debt (1989)
Working Paper: A Constant Recontracting Model Of Sovereign Debt (1988)
Working Paper: A Constant Recontracting Model of Sovereign Debt (1986)
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