{
  "title": "Default Premium",
  "publication": "IMF Working Papers, July 21, 2015",
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  "summary": "We re-assess the view that sovereigns with a history of default are charged only a small and/or short-lived premium on the interest rate warranted by observed fundamentals.",
  "sections": [
    {
      "heading": "Summary and objective",
      "content": "- Re-assesses the view that sovereigns with a history of default are charged only a small and/or short-lived premium on the interest rate warranted by observed fundamentals.\n- Introduces and applies a metric of the “default premium” (DP) that is consistent with asymmetric information models and nests previous metrics.\n- Applies the DP metric to a broader dataset relative to earlier studies."
    },
    {
      "heading": "Methodology and scope",
      "content": "- Metric: a DP measure consistent with asymmetric information models and encompassing prior metrics (described in the Working Paper).\n- Data coverage: two historical samples highlighted:\n  - 1870-1938\n  - 1970-2011\n- Publication details:\n  - Pages: 57\n  - Volume: 2015\n  - Issue: 167\n  - Series: Working Paper No. 2015/167\n  - DOI: https://doi.org/10.5089/9781513523507.001\n  - Stock No: WPIEA2015167\n  - ISBN: 9781513523507\n  - ISSN: 1018-5941"
    },
    {
      "heading": "Key quantitative findings",
      "content": "- 1870-1938 sample:\n  - DP averaged 250 bps upon market re-entry.\n  - DP tapered to around 150 bps five years out.\n- 1970-2011 sample:\n  - DP averaged about 400 bps upon market re-entry.\n  - DP tapered to about 200 bps five years out.\n- Within five years of market re-entry, the DP can account for as much as 60% of the sovereign spread.\n- The DP rises with market exclusion spells."
    },
    {
      "heading": "Robustness and ancillary results",
      "content": "- Estimates are robust to many controls, including controls on actual haircuts.\n- Findings help reconcile theory and evidence regarding:\n  - Why sovereign defaults are infrequent.\n  - Why earlier debt settlements are desirable."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subjects: Asset and liability management; Credit; Debt default; Debt settlement; Emerging and frontier financial markets; External debt; Financial markets; Money; Public debt.\n- Keywords: Country Risk; Credit; Debt default; Debt settlement; default premium; default premium variable; DP estimate; Emerging and frontier financial markets; Emerging Markets; exclusion spell; Global; Haircut; interest rate; Interest Rate Spread; market access; market exclusion; market re-entry; repayment decision; settlement dummy; Sovereign Debt; WP.\n\nSource: IMF Working Paper \"Default Premium\" by Luis Catão and Rui Mano, July 21, 2015 (Working Paper No. 2015/167; DOI: https://doi.org/10.5089/9781513523507.001).\n\n---\n\n Content in this bundle\n\n- Default Premium; by Luís A. V. Catão and Rui C. Mano; IMF Working Paper No. 15/167; July 1, 2015\n  - Default Premium; by Luís A. V. Catão and Rui C. Mano; IMF Working Paper No. 15/167; July 1, 2015 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Default Premium; by Luís A. V. Catão and Rui C. Mano; IMF Working Paper No. 15/167; July 1, 2015 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/default-premium-43105"
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    "Authors: Luis Catão, Rui Mano",
    "Published: July 21, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513523507.001",
    "Re-assesses the view that sovereigns with a history of default are charged only a small and/or short-lived premium on the interest rate warranted by observed fundamentals.",
    "Introduces and applies a metric of the “default premium” (DP) that is consistent with asymmetric information models and nests previous metrics.",
    "Applies the DP metric to a broader dataset relative to earlier studies.",
    "Metric: a DP measure consistent with asymmetric information models and encompassing prior metrics (described in the Working Paper).",
    "Data coverage: two historical samples highlighted:",
    "Publication details:",
    "1870-1938 sample:",
    "1970-2011 sample:",
    "Within five years of market re-entry, the DP can account for as much as 60% of the sovereign spread.",
    "The DP rises with market exclusion spells.",
    "Estimates are robust to many controls, including controls on actual haircuts.",
    "Findings help reconcile theory and evidence regarding:",
    "Subjects: Asset and liability management; Credit; Debt default; Debt settlement; Emerging and frontier financial markets; External debt; Financial markets; Money; Public debt.",
    "Keywords: Country Risk; Credit; Debt default; Debt settlement; default premium; default premium variable; DP estimate; Emerging and frontier financial markets; Emerging Markets; exclusion spell; Global; Haircut; interest rate; Interest Rate Spread; market access; market exclusion; market re-entry; repayment decision; settlement dummy; Sovereign Debt; WP.",
    "**Default Premium; by Luís A. V. Catão and Rui C. Mano; IMF Working Paper No. 15/167; July 1, 2015**"
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