Costs of Sovereign Defaults: Restructuring Strategies and the Credit-Investment Channel

58 Pages Posted: 14 Apr 2020

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund Research Department

Marcos Chamon

International Monetary Fund (IMF) - Research Department

Aitor Erce

UPNA

Akira Sasahara

Keio University

Date Written: February 21, 2020

Abstract

Sovereign debt restructurings are associated with declines in GDP, investment, private sector credit and capital flows. The transmission channels and associated output and banking sector costs depend on whether the restructuring takes place preemptively, without missing payments to creditors, or after a default has occurred. Post-default restructurings are associated with larger declines in GDP, investment, private sector credit and capital inflows than preemptive restructurings. The adverse effects from a restructuring are stronger in countries with larger banking sectors, consistent with a “credit-investment channel”.

Keywords: Sovereign Debt; Sovereign Defaults; Sovereign Debt Restructurings; GDP Growth; Investment; Banking Crisis; Local Projection

JEL Classification: F34; F41; H63;

Suggested Citation

Asonuma, Tamon and Chamon, Marcos and Erce, Aitor and Sasahara, Akira, Costs of Sovereign Defaults: Restructuring Strategies and the Credit-Investment Channel (February 21, 2020). Available at SSRN: https://ssrn.com/abstract=3557035 or http://dx.doi.org/10.2139/ssrn.3557035

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)

Aitor Erce

UPNA ( email )

Pamplona
Spain

Akira Sasahara

Keio University ( email )

2-15-45 Mita, Ninato-ku
Tokyo 1088345
Japan

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