An Econometric Analysis of the Impact of Sovereign Debt Structure on Default Likelihood
XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM)
15 Pages Posted: 1 May 2013
Date Written: December 21, 2012
This paper tests the effect of sovereign debt structure on default likelihood. Sovereign debt structure is identified on the basis of maturity, creditor type and currency composition. The paper uses panel logit model to estimate the likelihood of default. The results provide evidence that bilateral loans, short term debt, and bank loans increase the likelihood of default. Results also show that foreign currency denominated debt reduces default likelihood. The study provides empirical evidence to the literature on seniority status of official loans over private debt, and multilateral loans over bilateral loans. The paper models the impact of debt structure directly on the likelihood of default by adopting a comprehensive framework of the debt structure. The paper suggests that debt structure can also identify default episodes and can be used in designing default prediction models.
Keywords: Sovereign debt, default risk, debt structure, debt maturity, creditor type, currency composition, panel logit
JEL Classification: F33, F34, H63, O19
Suggested Citation: Suggested Citation