Sovereign Default and the Choice of Maturity

47 Pages Posted: 9 Jul 2021 Last revised: 20 Aug 2021

See all articles by Juan M. Sánchez

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: October, 2014

Abstract

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.

JEL Classification: F34, F41, G15

Suggested Citation

Sanchez, Juan M. and Sapriza, Horacio and Yurdagul, Emircan, Sovereign Default and the Choice of Maturity (October, 2014). FRB St. Louis Working Paper No. 2014-31, Available at SSRN: https://ssrn.com/abstract=3879347 or http://dx.doi.org/10.20955/wp.2014.031

Juan M. Sanchez (Contact Author)

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

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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