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Sovereign Debt Restructurings

  • Maximiliano Dvorkin
  • Juan M. Sánchez
  • Horacio Sapriza
  • Emircan Yurdagul
American Economic Journal: Macroeconomics
vol. 13, no. 2, April 2021
(pp. 26-77)
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Abstract

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.

Citation

Dvorkin, Maximiliano, Juan M. Sánchez, Horacio Sapriza, and Emircan Yurdagul. 2021. "Sovereign Debt Restructurings." American Economic Journal: Macroeconomics, 13 (2): 26-77. DOI: 10.1257/mac.20190220

Additional Materials

JEL Classification

  • E44 Financial Markets and the Macroeconomy
  • F34 International Lending and Debt Problems
  • F41 Open Economy Macroeconomics
  • H63 National Debt; Debt Management; Sovereign Debt
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