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Journal articles on the topic 'Sovereign Debt Default'

Author: Grafiati

Published: 4 June 2025

Last updated: 15 July 2025

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1

Bolton, Patrick, Mitu Gulati, and Ugo Panizza. "Sovereign Debt Puzzles." Annual Review of Financial Economics 15, no. 1 (2023): 239–63. http://dx.doi.org/10.1146/annurev-financial-111620-030025.

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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.

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2

Chatterjee, Satyajit, and Burcu Eyigungor. "A Seniority Arrangement for Sovereign Debt." American Economic Review 105, no. 12 (2015): 3740–65. http://dx.doi.org/10.1257/aer.20130932.

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A sovereign’s inability to commit to a course of action regarding future borrowing and default behavior makes long-term debt costly (the problem of debt dilution). One mechanism to mitigate this problem is the inclusion of a seniority clause in debt contracts. In the event of default, creditors are to be paid off in the order in which they lent (the “absolute priority” or “first-in-time” rule). In this paper, we propose a modification of the absolute priority rule suited to sovereign debts contracts and analyze its positive and normative implications within a quantitatively realistic model of sovereign debt and default. (JEL E32, E44, F34, G15, H63, O16, O19)

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3

Aitken, Rob. "The Sovereignty of Finance? Distress and the Financialization of Sovereign Debt." Perspectives on Global Development and Technology 18, no. 5-6 (2019): 493–526. http://dx.doi.org/10.1163/15691497-12341529.

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Abstract This article argues that the relationship between finance and state sovereignty is neither automatic nor understandable in some generalized manner. To develop this argument, I pay particular attention to the financialization of distressed sovereign debt, especially sovereign debt defaults in the Global South with particular reference to Argentina’s default in 2001 and the string of legal cases it triggered. These legal processes breathed a strange after-life into Argentina’s defaulted debt by converting that debt into fully commodified financial contracts. I argue that the financialization of sovereign debt is enabled by a long and complex evolution in the application of the doctrine of restrictive sovereign immunity. This financialization, moreover, is indicative of ways in which forms of financial distress are reworked as renewed sources of financial value. This provokes questions about the very relationship between waste and value in our global political economy.

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4

Jeremy, Cripps, and Feeney Kevin. "Consequences of Eurozone Sovereign Debt Default." AICEI Proceedings 7, no. 1 (2012): 237–51. https://doi.org/10.5281/zenodo.4502186.

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After the Second World War in connection with the potential for a national Euro sovereign debt crisis and sovereign debt default, we identify potential and positive consequences of such sovereign debt crises and sovereign debt defaults. This history reveals that four principle consequences have resulted from prior sovereign debt crises and defaults. These are generally seen to be: first, lost national reputation and reduced national borrowing capacity; second, the exclusion of some national companies from trading in certain markets; third, the impact on the domestic economy relating in particular to the cost of imports; and lastly, the impact on political activity and socioeconomic policy. Reviewing the consequences of sovereign debt crisis and default post 1980, this paper considers the consequences of the current Euro-zone sovereign debt crisis, the potential for default and its likely short and long-term significance, as well as the potential for unexpected consequences. The paper considers the likely magnitude of the output losses and the human costs that will inevitably follow on the current Euro-zone crisis. The Euro-zone has unique peculiarity because it is an economy within the European Union economy so the possibility of devaluation within the zone does not exist. The paper finds that there is potential for both positive and negative impacts on the citizens of Europe.

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5

Amador, Manuel, and Christopher Phelan. "Reputation and Sovereign Default." Econometrica 89, no. 4 (2021): 1979–2010. http://dx.doi.org/10.3982/ecta16685.

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This paper presents a continuous‐time model of sovereign debt. In it, a relatively impatient sovereign government's hidden type switches back and forth between a commitment type, which cannot default, and an opportunistic type, which can, and where we assume outside lenders have particular beliefs regarding how a commitment type should borrow for any given level of debt and bond price. In any Markov equilibrium, the opportunistic type mimics the commitment type when borrowing, revealing its type only by defaulting on its debt at random times. The equilibrium features a “graduation date”: a finite amount of time since the last default, after which time reputation reaches its highest level and is unaffected by not defaulting. Before such date, not defaulting always increases the country's reputation. For countries that have recently defaulted, bond prices and the total amount of debt are increasing functions of the amount of time since the country's last default. For countries that have not recently defaulted (i.e., those that have graduated), bond prices are constant.

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6

Isakov, K. S. "Sovereign Defaults and Banking Crises." Zhurnal Economicheskoj Teorii 18, no. 1 (2021): 29–47. http://dx.doi.org/10.31063/2073-6517/2021.18-1.2.

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This research is aimed at contributing to the endogenization of default costs. Higher exposure of a banking system to sovereign bonds increases the likelihood of banking panics due to sovereign defaults. Following (Gertler, Kiyotaki, 2015), the research models the possibility of a banking crisis occurring after a sovereign default. While a higher exposure of a banking system is associated with potential losses, this mechanism creates a stronger commitment to honor the sovereign debt. A marginal increase in the sovereign debt raises the ex-post costs of default through a higher likelihood of a banking crisis, thus making a default option less desirable. This mechanism might increase investors’ confidence and resolve the coordination problem of self-fulfilling crises. In part, this may explain the findings of Bocola and Dovis (2019), who claim that non-fundamental risk played only a limited role during the European sovereign debt crisis. Furthermore, as opposed to the standard solution of the coordination problem — to issue debt of longer maturity — a government can resolve this problem by forcing its banking system to hold more sovereign bonds.

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7

Panizza, Ugo, Federico Sturzenegger, and Jeromin Zettelmeyer. "The Economics and Law of Sovereign Debt and Default." Journal of Economic Literature 47, no. 3 (2009): 651–98. http://dx.doi.org/10.1257/jel.47.3.651.

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This paper surveys the recent literature on sovereign debt and relates it to the evolution of the legal principles underlying the sovereign debt market and the experience of the most recent debt crises and defaults. It finds limited support for theories that explain the feasibility of sovereign debt based on either external sanctions or exclusion from the international capital market and more support for explanations that emphasize domestic costs of default. The paper concludes that there remains a case for establishing institutions that reduce the cost of default but the design of such institutions is not a trivial task.

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8

Bagwell, Stephen. "Repudiation and Repression: The Human Costs of Sovereign Default." Social Sciences 12, no. 3 (2023): 121. http://dx.doi.org/10.3390/socsci12030121.

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Sovereign default has myriad economic and political consequences. Existing research, however, has not explored the human costs of sovereign default, though some link the fiscal flexibility afforded by sovereign creditworthiness to improved human rights performance. But what are the consequences when sovereigns lose all creditworthiness and default on their debt obligations? I argue that while the average effect of default is negative for respect for physical integrity rights, a conditional effect exists. When states devote more of their resources to debt service and default, they are likely to see a short term increase in respect for physical integrity rights. I find robust support for these arguments using panel data on over 90 developing countries from 1981–2010.

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9

Mitchener, Kris James, and Christoph Trebesch. "Sovereign Debt in the Twenty-first Century." Journal of Economic Literature 61, no. 2 (2023): 565–623. http://dx.doi.org/10.1257/jel.20211362.

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How will sovereign debt markets evolve in the twenty-first century? We survey how the literature has responded to the eurozone debt crisis, placing “lessons learned” in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies, (ii) a bank–sovereign “doom loop” and the propagation of sovereign risk to households and firms, (iii) rollover problems and self-fulfilling crisis dynamics, (iv) severe debt distress without outright sovereign defaults, (v) large-scale sovereign bailouts from abroad, and (vi) creditor threats to litigate and hold out in a debt restructuring. Many of these characteristics were already present in historical debt crises and are likely to remain relevant in the future. Looking forward, our survey points to a growing role of sovereign bank linkages, legal risks, domestic debt and default, and of official creditors, due to new lenders such as China as well as the increasing dominance of central banks in global debt markets. Questions of debt sustainability and default will remain acute in both developing and advanced economies. (JEL E58, F33, F34, G01, G21, H63, N20)

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10

Bitar, Nicholas. "Elements of Sovereign-Debt Default in the MENA Region." Asian Social Science 16, no. 12 (2020): 93. http://dx.doi.org/10.5539/ass.v16n12p93.

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In the past half-century, the MENA region has witnessed several political uproars, varying between internal instability and conflict to external assaults and disputes. Studies conducted on developing countries have shown that political risk factors have, one way or another, rushed the governments&rsquo; decision to default on their debt. The purpose of this study is to examine the significance of the determinants of sovereign debt default. The aim here is to find the correct set of independent variables, whose effect is significant and are agreed upon generally in the literature. The empirical study is a panel data that samples 35 years 1984-2018 for all MENA countries. From the political perspective, I find that corruption and cohesion are the factors that stand behind sovereign debt default. From the economic standpoint, inflation and debt to GDP ratio are significant and positively related indicators to sovereign debt defaults. Whereas, trade openness is significant and negatively related. Moreover, the results reveal that GDP growth is insignificant, this finding contradicts the literature of the determinants of sovereign debt.

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11

Guler, Bulent, Yasin Kürşat Önder, and Temel Taskin. "Hidden Debt." AEA Papers and Proceedings 112 (May 1, 2022): 536–40. http://dx.doi.org/10.1257/pandp.20221003.

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We study the role of transparency in debt and default dynamics in a quantitative sovereign default model augmented with asymmetric information. We assume that the sovereign debt portfolio is not transparent and part of the debt is not observable to lenders. The quantitative model is calibrated to the Bolivian economy and matches its long-term and business cycle properties. The quantitative results show that when the government moves to a transparent reporting regime, bond prices improve and the sovereign debt portfolio shifts toward noncontingent debt with an increase in overall debt level. However, higher debt increases default frequency and reduces welfare.

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12

Adam, Klaus, and Michael Grill. "Optimal Sovereign Default." American Economic Journal: Macroeconomics 9, no. 1 (2017): 128–64. http://dx.doi.org/10.1257/mac.20140093.

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When is it optimal for a fully committed government to default on its legal repayment obligations? Considering a small open economy with domestic production risk and noncontingent government debt, we show that it is ex ante optimal to occasionally deviate from the legal repayment obligation and to repay debt only partially. This holds true even if default generates significant deadweight costs ex post. A quantitative analysis reveals that default is optimal only in response to persistent disaster-like shocks to domestic output. Applying the framework to the situation in Greece, we find that optimal default policies suggest a considerably larger and more timely default than the one actually implemented in the year 2012. (JEL E23, E62, F41, H63)

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13

Bi, Huixin, and Nora Traum. "Estimating Sovereign Default Risk." American Economic Review 102, no. 3 (2012): 161–66. http://dx.doi.org/10.1257/aer.102.3.161.

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This paper uses Bayesian methods to estimate the sovereign default probability for Greece and Italy in the post-EMU period. We build a real business cycle model that allows for interactions among fiscal policy instruments, sovereign default risk, and a “fiscal limit,” which measures the maximum level of debt the government is willing to finance. We estimate the full nonlinear model using likelihood inference methods. Although we find that Greece historically had a lower default probability than Italy for a given debt level, our estimates suggest that the Italian government is more willing to service debt than the Greek government.

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14

Erce, Aitor, Enrico Mallucci, and Mattia Picarelli. "A Journey in the History of Sovereign Defaults on Domestic-Law Public Debt." International Finance Discussion Paper 2022, no. 1338 (2022): 1–35. http://dx.doi.org/10.17016/ifdp.2022.1338.

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We introduce a novel database on sovereign defaults that involve public debt instruments governed by domestic law. By systematically reviewing a large number of sources, we identify 134 default and restructuring events of domestic debt instruments, in 52 countries from 1980 to 2018. Domestic-law defaults are a global phenomenon. Over time, they have become larger and more frequent than foreign-law defaults. Domestic-law debt restructurings proceed faster than foreign ones, often through extensions of maturities and amendments to the coupon structure. While face value reductions are rare, net-present-value losses for creditors are still large. Unilateral amendments and post-default restructuring are the norm, but negotiated pre-default restructurings are becoming increasingly frequent. We also document that domestic-law defaults typically involve debt denominated in local currency and held by resident investors. We complement our analysis with a collection "sovereign histories", which provide the fine details about each episode.

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15

GUEMBEL, ALEXANDER, and OREN SUSSMAN. "Sovereign Debt without Default Penalties." Review of Economic Studies 76, no. 4 (2009): 1297–320. http://dx.doi.org/10.1111/j.1467-937x.2009.00542.x.

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16

Yue, Vivian Z. "Sovereign default and debt renegotiation." Journal of International Economics 80, no. 2 (2010): 176–87. http://dx.doi.org/10.1016/j.jinteco.2009.11.004.

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17

della Paolera, Gerardo, and Alan M. Taylor. "Sovereign debt in Latin America, 1820-1913." Revista de Historia Económica / Journal of Iberian and Latin American Economic History 31, no. 2 (2013): 173–217. http://dx.doi.org/10.1017/s0212610913000128.

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ABSTRACTThis paper examines sovereign lending to Latin America and the Caribbean from 1820 to 1913. We examine four waves of capital flows where defaults were followed by a return to market access. In spite of extended default, countries kept promising high returns that attracted international investors again and again: financial autarky thus gave way to eras of high integration to global markets as measured by sovereign risk pricing. We discuss imperfections of the sovereign debt institutional context in the region and discuss a menu of options that some countries used to seek funds in the global financial markets after defaults. The parallel with the modern Latin American and Caribbean sovereign bond market experience is striking.

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18

Ballard-Rosa, Cameron. "Hungry for Change: Urban Bias and Autocratic Sovereign Default." International Organization 70, no. 2 (2016): 313–46. http://dx.doi.org/10.1017/s0020818315000363.

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AbstractWhat drives autocrats to default on their sovereign debt? This article develops the first theory of sovereign debt default in autocracies that explicitly investigates survival incentives of political actors in nondemocracies. Self-interested elites, fearful of threats to their tenure because of urban unrest, may be willing to endure the long-term borrowing costs that defaulting creates rather than risk the short-term survival costs of removing cheap food policies for urban consumers. I test my main claims that both urbanization and food imports should be associated with greater likelihood of autocratic default using panel data covering forty-three countries over fifty years, finding that autocracies that are more reliant on imported food and that are more urbanized are significantly more likely to be in default on their external sovereign debt. I emphasize the regime-contingent nature of these effects by demonstrating that they are reversed when considering democratic sovereign default. I also substantiate the mechanisms put forward in my theory through illustrative historical cases of sovereign debt default in Zambia and Peru, in which I demonstrate that fear of urban unrest in the face of rapidly increasing food prices did indeed drive autocratic elites to default on international debt obligations. In addition to providing the first political theory of debt default in autocracies, the article introduces two robust predictors of autocratic default that have been overlooked in previous work, and highlights the importance of urban-rural dynamics in nondemocratic regimes.

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19

Suttle, Oisin. "Debt, Default, and Two Liberal Theories of Justice." German Law Journal 17, no. 5 (2016): 799–834. http://dx.doi.org/10.1017/s2071832200021477.

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There is a fundamental disconnect between the public discourse about sovereign and external debt in comparison to private domestic debt. The latter is predominantly viewed through a Humean lens, which sees economic morality in terms of contingent social institutions, justified by the valuable goods they realize; while sovereign and external debt is viewed through a Lockean lens, which sees property, contract, and debt as possessing an intrinsic moral quality, independent of social context or consequences. This Article examines whether this Lockean perspective on sovereign and external debt is compatible with the dominance of Humean approaches to the domestic economy. It considers and rejects the most plausible argument for reconciling these views, which emphasizes the different qualities of cooperation in the international and domestic economies. It further argues that many standard objections to a Humean approach to sovereign debt suggest, not the Lockean approach, but rather a Hobbesian international moral skepticism. Concluding that the Lockean approach is unmotivated, this Article instead advances a Humean account of sovereign debt and default. It shows how taking seriously the demand for institutional justification and the idea of persons and peoples as free and equal provides an account of the duties of states—whether creditors, debtors or third parties—in sovereign debt crises. It further examines the implications of each approach for democratic choice about sovereign default.

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20

Horn, Sebastian, Bradley C. Parks, Carmen M. Reinhart, and Christoph Trebesch. "Debt Distress on China’s Belt and Road." AEA Papers and Proceedings 113 (May 1, 2023): 131–34. http://dx.doi.org/10.1257/pandp.20231004.

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This paper shows that China's lending boom to developing country sovereigns has largely ended and that debt distress and defaults are increasingly common. Chinese lenders react to this challenge through two main coping strategies: first, bilateral sovereign debt restructurings–typically with maturity extensions but no face value cuts–and, second, rescue loans that allow debtors to avoid or delay default. Low-income countries tend to receive debt restructurings, whereas emerging market countries are more likely to receive rescue loans. We speculate that the differential crisis response is due to the different exposure levels of Chinese state banks.

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21

Hatchondo, Juan Carlos, Leonardo Martinez, and César Sosa-Padilla. "Debt Dilution and Sovereign Default Risk." Journal of Political Economy 124, no. 5 (2016): 1383–422. http://dx.doi.org/10.1086/688081.

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22

Arazmuradov, Annageldy. "Assessing sovereign debt default by efficiency." Journal of Economic Asymmetries 13 (June 2016): 100–113. http://dx.doi.org/10.1016/j.jeca.2016.03.002.

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23

Martinez, Leonardo, Juan Carlos Hatchondo, and Cesar Sosa Padilla. "Debt Dilution and Sovereign Default Risk." IMF Working Papers 11, no. 70 (2011): 1. http://dx.doi.org/10.5089/9781455227099.001.

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24

Chaumont, Gaston, Grey Gordon, Bruno Sultanum, and Elliot Tobin. "Sovereign Debt and Credit Default Swaps." Federal Reserve Bank of Richmond Working Papers 23, no. 05 (2023): 1–18. http://dx.doi.org/10.21144/wp23-05.

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25

Hatchondo, Juan Carlos, Leonardo Martinez, and Francisco Roch. "Fiscal Rules and the Sovereign Default Premium." American Economic Journal: Macroeconomics 14, no. 4 (2022): 244–73. http://dx.doi.org/10.1257/mac.20170479.

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We study fiscal rules using a sovereign default model. A debt-brake (spread-brake) rule imposes a ceiling on the fiscal deficit when the sovereign debt (spread) is above a threshold. For our benchmark calibration, similar gains can be achieved with the optimal debt or spread brake. However, for a “Union” of heterogeneous economies, a common spread brake generates larger gains than a common debt brake. Furthermore, gains from abandoning a common debt brake may be significant for economies that are unnecessarily constrained by the rule. In contrast, abandoning a common spread brake would generate losses for any economy in the Union. (JEL E62, F34, F41, H61, H63)

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26

Dvorkin, Maximiliano, Juan M. Sánchez, Horacio Sapriza, and Emircan Yurdagul. "Sovereign Debt Restructurings." American Economic Journal: Macroeconomics 13, no. 2 (2021): 26–77. http://dx.doi.org/10.1257/mac.20190220.

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Sovereign debt crises involve debt restructurings characterized by a mix of face value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. While debt dilution pushes for negative maturity extensions, three factors are important in overcoming the effects of dilution and generating maturity extensions upon restructurings: income recovery after default, credit exclusion after restructuring, and regulatory costs of book value haircuts. We employ dynamic discrete choice methods that allow for smoother decision rules, rendering the problem tractable. (JEL E44, F34, F41, H63)

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27

Kriz, Kenneth A., Qiushi Wang, and Sikarn Issarachaiyos. "Debt Burden and Perceived Sovereign Default Risk: Evidence from Credit Default Swaps." Public Finance and Management 15, no. 3 (2015): 203–24. http://dx.doi.org/10.1177/152397211501500302.

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This research employs a relatively new type of market data, the credit default swaps (CDSs) values, to study the impact of public debt and market perceptions of default from an international perspective. Using a sample of 57 sovereign countries over five years, we find that sovereign external debt is positively associated with the implied cumulative probability of default (CPD). We further find that credit rating scores, economic growth, and cash surpluses are inversely related to CPD, while the change in the inflation rate and government size have a positive correlation with CPD. The findings clarify the relative role of the debt burden in predicting market perceived default risk.

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Reinhart, Carmen M., and Kenneth S. Rogoff. "From Financial Crash to Debt Crisis." American Economic Review 101, no. 5 (2011): 1676–706. http://dx.doi.org/10.1257/aer.101.5.1676.

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Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt and banking crises. We test three related hypotheses at both “world” aggregate levels and on an individual country basis. First, external debt surges are an antecedent to banking crises. Second, banking crises (domestic and those in financial centers) often precede or accompany sovereign debt crises; we find they help predict them. Third, public borrowing surges ahead of external sovereign default, as governments have “hidden domestic debts” that exceed the better documented levels of external debt. (JEL E44, F34, F44, G01, H63, N20)

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Deceanu, Liviu-Daniel, and Gabriela Bodea. "Some aspects concerning the economics of sovereign debt and possible influences of the COVID-19 pandemic." Virgil Madgearu Review of Economic Studies and Research 14, no. 1 (2021): 17–29. http://dx.doi.org/10.24193/rvm.2021.14.71.

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In the last 10 years, the sovereign debt crisis and its effects have made certain concepts, reserved until then only to specialists, to become elements of current language – public debt, sovereign debt, default, over-indebtedness, structural deficit, monetary policy, indebtedness ratios, sovereign debt effects, IMF intervention, willingness to pay… The indebtedness and over-indebtedness generated negative effects that affected not only the public finances, but also the economic agents (businesses) and the population, fueled by the lack of vision and responsibility of some governors. After the global economic crisis of 2008 and that of sovereign debt after 2010, a better control of indebtedness was tried, a more rigorous approach was implemented, but the Coronavirus pandemic that manifested itself in 2020 (and continues to do so) brought back to the forefront the problem of sovereign indebtedness and sovereign default.

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Ting, Chien-Jung. "Prioritizing Solutions of Sovereign Debt Default in PIIGS." International Business Research 11, no. 2 (2018): 161. http://dx.doi.org/10.5539/ibr.v11n2p161.

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The global economic recession in 2008 triggered an eruption of Europe sovereign debt defaults in Portugal, Italy, Ireland, Greece, and Spain (PIIGS), and these defaults originated from a social welfare expense burden and sovereign debt rollover. In this paper, we detect methods for eliminating the European sovereign debt crisis via the Delphi technique and the Analytic Hierarchy Process. Suggestions from experts include, respectively, “actively lessening government fiscal deficit,” ”lowering the sovereign debt of PIIGS,” and “strengthening the fiscal structure of Eurozone countries.” The empirical results correspond with the actual actions of the EMU, especially the reimbursement constraints on PIIGS by the European Central Bank. It is concluded that improving the nation’s fiscal structure is important, and the feasible ways to do so include reducing social welfare expense, levying more taxes on the middle class, and improving the quality of labor. Especially, enhancing a nation’s debt-credit ratio could increase solvency.

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Miftah, Badir. "The Determinants of Sovereign Credit Default Swaps (CDS) Spreads." Strategic Financial Review 1, no. 2 (2024): 79–107. http://dx.doi.org/10.59762/sfr1220240710133310.

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The paper examines the determinants of sovereign CDS spreadsfor 19 different primary sovereigns from January 2009 to December2018, using several macroeconomic variables. We apply apanel vector autoregressive (PVAR) model using a system-generalizedmethod of moment (System-GMM) methodology, to analysethe relationship between the CDS spreads and its macroeconomicdeterminants. Our model combines both local factors, suchas GDP growth rate, import, export, inflation rate, the balanceof payment, and government external debt with global factorssuch as S&amp;P 500 Index (SP500) returns, CBOE Market VolatilityIndex (VIX), and 10-year U.S. Treasury. We find that both local(such as inflation and government external debt), and global(e.g., VIX) determinants of sovereign CDS spreads are statisticallysignificant through various periods for most maturities.

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32

Boonman, Tjeerd Menno. "THE ECONOMIC IMPACT OF SOVEREIGN DEFAULTS IN LATIN AMERICA 1870-2012." Revista de Historia Económica / Journal of Iberian and Latin American Economic History 35, no. 1 (2016): 81–104. http://dx.doi.org/10.1017/s0212610916000136.

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ABSTRACTThis article analyzes sovereign debt defaults in four Latin American countries—Argentina, Brazil, Chile and Mexico—for the period 1870-2012. The impact of sovereign defaults on real GDP growth is generally short-lived, while the impact in terms of output losses is deep and lasts long. Defaults in the period 1972-2012 show a deep and long-lasting impact compared to defaults in earlier periods. Moreover, the length of the contraction that follows a default is associated with favourable international conditions in the run-up to a default, while the depth of the contraction is associated with an expansive domestic economy in the run-up to a default. The results fit with boom–bust theories and sudden stop models.

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33

Mallucci, Enrico. "Natural Disasters, Climate Change, and Sovereign Risk." International Finance Discussion Paper 2020, no. 1291r1 (2020): 1–34. http://dx.doi.org/10.17016/ifdp.2020.1291r1.

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I investigate how natural disasters can exacerbate fiscal vulnerabilities and trigger sovereign defaults. I extend a standard sovereign default model to include disaster risk and calibrate it to a sample of seven Caribbean countries that are frequently hit by hurricanes. I find that disaster risk reduces government's ability to issue debt and that climate change further restricts government's access to financial markets. Next, I show that "disaster clauses", that provide debt-servicing relief, allow governments to borrow more and preserve government's access to financial markets, amid rising risk of disasters. Yet, debt limits may need to be adopted to avoid overborrowing and a decline of welfare.

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Siwińska-Gorzelak, Joanna, and Michał Brzozowski. "Sovereign default and the structure of private external debt." Central European Economic Journal 5, no. 52 (2019): 1–9. http://dx.doi.org/10.1515/ceej-2018-0003.

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Abstract While the literature on determinants of sovereign default is voluminous, the links between private indebtedness and the probability of public bankruptcy have not been studied extensively. In this paper we aim to fill this gap and to shed more light on the influence of the size and structure of private debt on sovereign default probability. We focus on developing and emerging market economies over the years 1970–2012. The main conclusions are that both the size and the structure of private borrowings affect the probability of a sovereign default.

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35

ADAMSON, MICHAEL R. "Debating sovereign bankruptcy: postrevolutionary Mexico, 1919–1931." Financial History Review 13, no. 2 (2006): 197–215. http://dx.doi.org/10.1017/s0968565006000242.

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This article assesses the extent to which bankers approached sovereign debt defaults during the interwar period according to norms established during the nineteenth century. Bankers treated postrevolutionary Mexico as a hybrid, that is, as a case of both developmental and revenue default, in Fishlow's taxonomy, in the interest of protecting the rights of bondholders generally. Their approach led them to reject the argument of US ambassador to Mexico (and former Morgan partner), Dwight W. Morrow, that a government could be financially insolvent. Bankers acted similarly during the debt crisis of the 1980s.

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36

Deng, Minjie. "Inequality, Taxation, and Sovereign Default Risk." American Economic Journal: Macroeconomics 16, no. 2 (2024): 217–49. http://dx.doi.org/10.1257/mac.20210133.

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Income inequality and worker migration significantly affect sovereign default risk. Governments often impose progressive taxes to reduce inequality, which redistribute income but discourage labor supply and induce emigration. Reduced labor supply and a smaller high-income workforce erode the current and future tax base, reducing government’s ability to repay debt. I develop a sovereign default model with endogenous nonlinear taxation and heterogeneous labor to quantify this effect. In the model, the government chooses the optimal combination of taxation and debt, considering its impact on workers’ labor and migration decisions. Income inequality accounts for one-fifth of the average US state government spread. (JEL D31, F34, H21, H23, H74, J61, R23)

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Afonso, António, and André Albuquerque. "Sovereign Credit Rating Mismatches." Notas Económicas, no. 46 (July 1, 2018): 49–70. http://dx.doi.org/10.14195/2183-203x_46_3.

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We study the factors behind ratings mismatches in sovereign credit ratings from different agencies, for the period 1980‑‑2015. Using random effects ordered and simple probit approaches, we find that structural balances and the existence of a default in the last ten years were the least significant variables. In addition, the level of net debt, budget balances, GDP per capita and the existence of a default in the last five years were found to be the most relevant variables for rating mismatches across agencies. For speculative‑‑grade ratings, a default in the last two or five years decreases the rating difference between S&P and Fitch. For the positive rating difference between S&P and Moody’s, and for investment‑‑grade ratings, an increase in external debt leads to a smaller rating gap between the two agencies.

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CONSIGLIO, ANDREA, MICHELE TUMMINELLO, and STAVROS A. ZENIOS. "PRICING SOVEREIGN CONTINGENT CONVERTIBLE DEBT." International Journal of Theoretical and Applied Finance 21, no. 08 (2018): 1850049. http://dx.doi.org/10.1142/s0219024918500498.

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We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign’s Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spread levels under fixed regimes, in order to obtain S-CoCo prices through simulation. The paper uses the pricing model in a Longstaff–Schwartz American option pricing framework to compute future state contingent S-CoCo prices for risk management. Dual trigger pricing is also discussed using the idiosyncratic CDS spread for the sovereign debt together with a broad market index. Numerical results are reported using S-CoCo designs for Greece, Italy and Germany with both the pricing and contingent pricing models.

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Asonuma, Tamon, and Christoph Trebesch. "SOVEREIGN DEBT RESTRUCTURINGS: PREEMPTIVE OR POST-DEFAULT." Journal of the European Economic Association 14, no. 1 (2016): 175–214. http://dx.doi.org/10.1111/jeea.12156.

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40

Salomao, Juliana. "Sovereign debt renegotiation and credit default swaps." Journal of Monetary Economics 90 (October 2017): 50–63. http://dx.doi.org/10.1016/j.jmoneco.2017.06.005.

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41

Tomz, Michael, and Mark L. J. Wright. "Empirical Research on Sovereign Debt and Default." Annual Review of Economics 5, no. 1 (2013): 247–72. http://dx.doi.org/10.1146/annurev-economics-061109-080443.

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Dvorkin, Maximiliano, Juan M. Sánchez, Horacio Sapriza, and Emircan Yurdagul. "News, sovereign debt maturity, and default risk." Journal of International Economics 126 (September 2020): 103352. http://dx.doi.org/10.1016/j.jinteco.2020.103352.

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43

Hassan, M. Kabir, Geoffrey M. Ngene, and Jung-Suk Yu. "Credit default swaps and sovereign debt markets." Economic Systems 39, no. 2 (2015): 240–52. http://dx.doi.org/10.1016/j.ecosys.2014.07.002.

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44

Mauro, Maria Rosaria. "SOVEREIGN DEFAULT AND LITIGATION: NML CAPITAL V. ARGENTINA." Italian Yearbook of International Law Online 24, no. 1 (2015): 249–68. http://dx.doi.org/10.1163/22116133-90000081a.

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In recent times private creditors have increasingly begun to resort to litigation against States in case of sovereign debt default. One of the most complex recent cases concerns the legal proceedings brought against Argentina by NML Capital Limited before the courts of the United States (US). The plaintiffs are primarily “vulture funds”, seeking profit by buying heavily discounted distressed debt, that have rejected the restructuring terms accepted by the majority of Argentina’s creditors. There are two main questions at the heart of the present dispute: sovereign immunity and the alleged breach of the US Foreign Sovereign Immunities Act (FSIA), and the interpretation of the pari passu clause. The US Supreme Court held that the FSIA does not limit the scope of discovery against foreign sovereign assets and rejected Argentina’s petition for certiorari to review the Second Circuit decision upholding the injunction orders that required Argentina to pay NML Capital and the other plaintiffs whenever it pays the holders of its restructured debt. This comment assesses the approach of the US courts in relation to discovery and their interpretation of the pari passu provision. In particular, it argues that the outcome of this legal battle threatens future sovereign debt restructurings and confirms the gravity of the lack of a binding central restructuring mechanism.

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Chatterjee, Satyajit. "When Nations Can't Default: A History of War Reparations and Sovereign Debt." Journal of Economic Literature 62, no. 4 (2024): 1689–90. https://doi.org/10.1257/jel.62.4.1682.r5.

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Satyajit Chatterjee of Federal Reserve Bank of Philadelphia reviews “When Nations Can't Default: A History of War Reparations and Sovereign Debt” by Simon Hinrichson. The Econlit abstract of this book begins: “Promotes the argument that war reparations are unlike other sovereign debt because the repayment is enforced by military and political force, exploring how debtor countries end up in suboptimal economic situations that do not occur during normal sovereign debt management.”

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46

Arellano, Cristina. "Default Risk and Income Fluctuations in Emerging Economies." American Economic Review 98, no. 3 (2008): 690–712. http://dx.doi.org/10.1257/aer.98.3.690.

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Recent sovereign defaults are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output and foreign debt. Default probabilities and interest rates depend on incentives for repayment. Default is more likely in recessions because this is when it is more costly for a risk averse borrower to repay noncontingent debt. The model closely matches business cycles in Argentina predicting high volatility of interest rates, higher volatility of consumption relative to output, and negative correlations of output with interest rates and the trade balance. (JEL E21, E23, E32, E43, F34, O11, O19)

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Tsaregradskaya, Iu K. "Public debt management as one of the legal instruments for the implementation of economic sovereignty." Courier of Kutafin Moscow State Law University (MSAL)), no. 7 (October 18, 2023): 67–76. http://dx.doi.org/10.17803/2311-5998.2023.107.7.067-076.

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In connection with the difficult economic situation associated with the introduction of international sanctions against the Russian Federation, problems arise in repaying the external debt obligations of the Russian Federation, which makes it possible to fix the sovereign default of Russia at the international level.It is concluded that: a) the size of the state internal and external debt does not allow drawing conclusions about the impossibility of the state to service its own obligations, b) fixing the sovereign default of the Russian Federation is quite politicized, since there were technical circumstances that did not allow the payment of obligations on time and in the relevant currency.The scientific significance of the study of this topic lies in the development of theoretical provisions related to the management of public debt, as well as the correlation of its presence with the threat to economic security and sovereignty of the state.

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Alfaro, Laura, and Fabio Kanczuk. "Undisclosed Debt Sustainability." AEA Papers and Proceedings 112 (May 1, 2022): 521–25. http://dx.doi.org/10.1257/pandp.20221000.

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Over the past decade, non-Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find that they greatly reduce traditional Paris Club creditors' debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models.

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Demoussis, Michael, Konstantinos Drakos, and Nicholas Giannakopoulos. "The impact of sovereign ratings on euro zone SMEs’ credit rationing." Journal of Economic Studies 44, no. 5 (2017): 745–64. http://dx.doi.org/10.1108/jes-03-2016-0046.

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Purpose The purpose of this paper is to investigate credit rationing across firms in euro zone countries, as it relates to its own sovereign credit ratings. Design/methodology/approach The authors utilize firm-level data from the Survey on Access to Finance of Enterprises for the period 2009-2013 conducted by the European Central Bank. Findings A negative association between the rating of sovereign creditworthiness and credit rationing is identified, while credit rationing varies substantially even among countries with the highest quality of sovereign bonds. Credit rationing is lower in sovereigns with high-quality ratings and higher in sovereigns near default. These results remain intact when fundamental firm characteristics (e.g. firm’s age and size, sector of economic activity, financial situation, etc.) are taken into consideration. This indicates that the interconnection of sovereign debt risk with domestic credit market outcomes is robust. Originality/value The present study contributes to the relevant literature by performing a detailed analysis of credit rationing for euro zone SMEs and by exploring the link between sovereign credit rating and credit rationing during the sovereign debt crisis period.

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50

Chatterjee, Satyajit, and Burcu Eyigungor. "Maturity, Indebtedness, and Default Risk." American Economic Review 102, no. 6 (2012): 2674–99. http://dx.doi.org/10.1257/aer.102.6.2674.

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We advance quantitative-theoretic models of sovereign debt by proving the existence of a downward sloping equilibrium price function for long-term debt and implementing a novel method to accurately compute it. We show that incorporating long-term debt allows the model to match Argentina's average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads, and simultaneously improve upon the model's ability to account for Argentina's other cyclical facts. We also investigated the welfare properties of maturity length and showed that if the possibility of self-fulfilling rollover crises is taken into account, long-term debt is superior to short-term debt. (JEL E23, E32, F34, O11, O19)

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