IMF Working Papers

Serial Sovereign Defaults and Debt Restructurings

By Tamon Asonuma

March 16, 2016

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Format: Chicago

Tamon Asonuma. Serial Sovereign Defaults and Debt Restructurings, (USA: International Monetary Fund, 2016) accessed March 6, 2025
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same external debt-to-GDP ratio. These countries actually have repeated defaults or restructurings in short periods. This paper explains these stylized facts within a dynamic stochastic general equilibrium framework by explicitly modeling renegotiations between a defaulting country and its creditors. The quantitative analysis of the model reveals that the equilibrium probability of default for a given debt-to-GDP level is weakly increasing with the number of past defaults. The model also accords with an additional fact: lower recovery rates (high NPV haircuts) are associated with increases in spreads at renegotiation.

Subject: Asset and liability management, Asset prices, Credit, Debt renegotiation, Money, Prices, Public debt, Sovereign debt restructuring

Keywords: Asset prices, Credit, Credit history, Credit history ht, Debt renegotiation, Debt Restructuring, Default probability, Defaulted debt, GDP ratio, Global, Haircuts, Past Credit History, Rate of return, Recovery rate, Recovery rates, Risk Premia, Serial Default, Sovereign debt restructuring, Sovereign Default, Utility function, WP

Publication Details

  • Pages:

    45

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2016/066

  • Stock No:

    WPIEA2016066

  • ISBN:

    9781513596648

  • ISSN:

    1018-5941

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