Sovereign Default and the Choice of Maturity
47 Pages Posted: 9 Jul 2021 Last revised: 20 Aug 2021
Date Written: October, 2014
This study develops a novel model of endogenous sovereign debt maturity choice that rationalizes various stylized facts about debt maturity and the yield spread curve: first, sovereign debt duration and maturity generally exceed one year, and co-move positively with the business cycle. Second, sovereign yield spread curves are usually non-linear and upward-sloped, and may become non-monotonic and inverted during a period of high credit market stress, such as a default episode. Finally, output volatility, sudden stops, impatience and risk aversion are key determinants of maturity, both in our model and in the data.
Keywords: Debt Crises, Restructuring, yield curves, Bond Duration, Debt Dilution.
JEL Classification: F34, F41, G15
Suggested Citation: Suggested Citation