Selective Sovereign Defaults

48 Pages Posted: 27 Nov 2018 Last revised: 29 Apr 2020

See all articles by Aitor Erce

Aitor Erce


Enrico Mallucci

Board of Governors of the Federal Reserve System

Date Written: 2018-11


Governments issue debt both domestically and abroad. This heterogeneity introduces the possibility for governments to operate selective defaults that discriminate across investors. Using a novel dataset on the legal jurisdiction of sovereign defaults that distinguishes between defaults under domestic law and default under foreign law, we show that selectiveness is the norm and that imports, credit, and output dynamics are different around different types of default. Domestic defaults are associated with contractions of credit and are more likely in countries with smaller credit markets. In turn, external defaults, are associated with a sharp contraction of imports and are more likely in countries with depressed import markets. Based on these regularities, we construct a dynamic stochastic general equilibrium model that we calibrate to Argentina. We show that the model replicates well the behavior of the Argentinean economy and rationalizes these empirical findings.

Keywords: Sovereign Default, Selective Defaults, Domestic Debt, External Debt, Credit, Imports

JEL Classification: F34, F41, H63

Suggested Citation

Erce, Aitor and Mallucci, Enrico, Selective Sovereign Defaults (2018-11). FRB International Finance Discussion Paper No. 1239, Available at SSRN: or

Aitor Erce (Contact Author)

UPNA ( email )


Enrico Mallucci

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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