Serial Sovereign Defaults and Debt Restructurings

46 Pages Posted: 4 May 2016

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund Research Department

Date Written: March 2016


Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same external debt-to-GDP ratio. These countries actually have repeated defaults or restructurings in short periods. This paper explains these stylized facts within a dynamic stochastic general equilibrium framework by explicitly modeling renegotiations between a defaulting country and its creditors. The quantitative analysis of the model reveals that the equilibrium probability of default for a given debt-to-GDP level is weakly increasing with the number of past defaults. The model also accords with an additional fact: lower recovery rates (high NPV haircuts) are associated with increases in spreads at renegotiation.

Keywords: Serial Default, Sovereign Default, Past Credit History, Haircuts, Recovery rates, Risk Premia, debt, default, defaults, return, defaulters, International Lending and Debt Problems, Open Economy Macroeconomics, All Countries,

JEL Classification: F34, F41, H63

Suggested Citation

Asonuma, Tamon, Serial Sovereign Defaults and Debt Restructurings (March 2016). IMF Working Paper No. 16/66. Available at SSRN:

Tamon Asonuma (Contact Author)

International Monetary Fund Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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