Borrowing Costs after Sovereign Debt Relief

42 Pages Posted: 1 Mar 2021

See all articles by Valentin Lang

Valentin Lang

University of Zurich

David Mihalyi

Natural Resource Governance Institute (NRGI)

Andrea Presbitero

Johns Hopkins University

Multiple version iconThere are 2 versions of this paper

Date Written: February 2021

Abstract

Can debt moratoria help countries weather negative shocks? We study the bond market effects of an official debt service suspension endorsed by the international community during the Covid-19 pandemic. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.

JEL Classification: F34, H63, O23

Suggested Citation

Lang, Valentin and Mihalyi, David and Presbitero, Andrea, Borrowing Costs after Sovereign Debt Relief (February 2021). CEPR Discussion Paper No. DP15832, Available at SSRN: https://ssrn.com/abstract=3795215

Valentin Lang (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

David Mihalyi

Natural Resource Governance Institute (NRGI) ( email )

80 Broad Street
New York, NY 10004
United States

Andrea Presbitero

Johns Hopkins University ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

HOME PAGE: http://https://sites.google.com/site/presbitero/

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