Policy Interventions in Sovereign Debt Restructurings

48 Pages Posted: 27 Nov 2019

See all articles by Maximiliano A. Dvorkin

Maximiliano A. Dvorkin

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Juan M. Sánchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Horacio Sapriza

Board of Governors of the Federal Reserve System

Emircan Yurdagul

Universidad Carlos III de Madrid

Date Written: 2019-11-15

Abstract

The wave of sovereign defaults in the early 1980s and the string of debt crises in the decades that followed have fostered proposals involving policy interventions in sovereign debt restructurings. A key question about these proposals that has proved hard to handle is how they in influence the behavior of creditors and debtors. We address such challenge by incorporating these policy proposals into a quantitative model in the tradition of Eaton and Gersovitz (1981) that includes renegotiation in sovereign debt restructurings. Critically, the model also endogenizes the choice of debt maturity, an essential aspect of sovereign defaults and restructurings. We evaluate several policy interventions, and we identify the crucial features that matter to improve the outcome of distressed debt restructurings and reduce the frequency of debt distress events.

Keywords: Crises, Default, Sovereign Debt, Restructuring, Rescheduling, Country Risk, Maturity, International Monetary Fund, Dynamic Discrete Choice

JEL Classification: F34, F41, G15

Suggested Citation

Dvorkin, Maximiliano A. and Sanchez, Juan M. and Sapriza, Horacio and Yurdagul, Emircan, Policy Interventions in Sovereign Debt Restructurings (2019-11-15). FRB St. Louis Working Paper No. 2019-36. Available at SSRN: https://ssrn.com/abstract=3494066 or http://dx.doi.org/10.20955/wp.2019.036

Maximiliano A. Dvorkin (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Juan M. Sanchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Horacio Sapriza

Board of Governors of the Federal Reserve System ( email )

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

Emircan Yurdagul

Universidad Carlos III de Madrid

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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