Sovereign Debt Puzzles

Posted: 7 Nov 2023

See all articles by Patrick Bolton

Patrick Bolton

Imperial College London; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Mitu Gulati

University of Virginia School of Law

Ugo Panizza

Centre for Economic Policy Research (CEPR); Geneva Graduate Institute

Date Written: November 2023

Abstract

We review the state of the sovereign debt literature and point out that the canonical model of sovereign debt cannot be easily reconciled with several facts about sovereign debt pricing and servicing. We identify and classify more than 20 puzzles. Some are well-known and documented, others are less so and are sometimes based on anecdotal evidence. We classify these puzzles into three categories: puzzles about how sovereigns issue debt; puzzles about the pricing of sovereign debt; and puzzles about sovereign default and the working out of defaults. We conclude by suggesting possible avenues for new research aimed at reconciling theory with what we observe in the real world.

Suggested Citation

Bolton, Patrick and Gulati, Mitu and Panizza, Ugo, Sovereign Debt Puzzles (November 2023). Annual Review of Financial Economics, Vol. 15, pp. 239-263, 2023, Available at SSRN: https://ssrn.com/abstract=4622192 or http://dx.doi.org/10.1146/annurev-financial-111620-030025

Patrick Bolton (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mitu Gulati

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Ugo Panizza

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Geneva Graduate Institute

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