Trade Costs of Sovereign Debt Restructurings: Does a Market-Friendly Approach Improve the Outcome?

58 Pages Posted: 3 Jan 2017

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund Research Department

Marcos Chamon

International Monetary Fund (IMF) - Research Department

Akira Sasahara

University of Idaho - College of Business & Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2016

Abstract

Sovereign debt restructurings have been shown to influence the dynamics of imports and exports. This paper shows that the impact can vary substantially depending on whether the restructuring takes place preemptively without missing payments to creditors, or whether it takes place after a default has occurred. We document that countries with post-default restructurings experience on average: (i) a more severe and protracted decline in imports, (ii) a larger fall in exports, and (iii) a sharper and more prolonged decline in both GDP, investment and real exchange rate than preemptive cases. These stylized facts are confirmed by panel regressions and local projection estimates, and a range of robustness checks including for the endogeneity of the restructuring strategy. Our findings suggest that a country's choice of how to go about restructuring its debt can have major implications for the costs it incurs from restructuring.

Keywords: Sovereign debt defaults, Sovereign debt restructuring, External debt, Trade, Econometric models, Sovereign Debt; Sovereign Defaults; Sovereign Debt Restructurings; Trade; Panel Regression; Local Projections;

JEL Classification: F14, F34, F41, H63

Suggested Citation

Asonuma, Tamon and Chamon, Marcos and Sasahara, Akira, Trade Costs of Sovereign Debt Restructurings: Does a Market-Friendly Approach Improve the Outcome? (November 2016). IMF Working Paper No. 16/222. Available at SSRN: https://ssrn.com/abstract=2892608

Tamon Asonuma (Contact Author)

International Monetary Fund Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Marcos Chamon

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-5867 (Phone)

Akira Sasahara

University of Idaho - College of Business & Economics ( email )

Moscow, ID 83944-3174
United States

HOME PAGE: http://https://sites.google.com/view/akirasasahara/home

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