Crisis Costs and Debtor Discipline: The Efficacy of Public Policy in Sovereign Debt Crises
Bank of England Working Paper No. 136
32 Pages Posted: 30 Jun 2001
Date Written: May 2001
Recent debate on the reform of the international financial architecture has highlighted the potentially important role of the official sector in crisis management. This paper examines how such public intervention in sovereign debt crises affects efficiency, ex ante and ex post. The results shed light on the scale of capital inflows in such a regime, and the analysis establishes conditions under which this leads to an improvement in debtor country welfare. The efficacy of measures such as officially sanctioned stays on creditor litigation depend critically on the quality of public sector surveillance and the size of the costs of sovereign debt crises.
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