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Sovereign default and maturity choice

Author

Listed:
  • Sánchez, Juan M.
  • Sapriza, Horacio
  • Yurdagul, Emircan

Abstract

This study develops a novel model of endogenous sovereign debt maturity that rationalizes various stylized facts about debt maturity and the yield spread curve: first, sovereign debt duration and maturity generally exceed one year, and co-move positively with the business cycle. Second, sovereign yield spread curves are usually non-linear and upward-sloped, and may become non-monotonic and inverted during a period of high credit market stress, such as a default episode. Finally, output volatility, impatience, risk aversion, and especially sudden stops, are key determinants of maturity, both in our model and in the data.

Suggested Citation

  • Sánchez, Juan M. & Sapriza, Horacio & Yurdagul, Emircan, 2018. "Sovereign default and maturity choice," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 72-85.
    • Handle: RePEc:eee:moneco:v:95:y:2018:i:c:p:72-85
    DOI: 10.1016/j.jmoneco.2018.01.001
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    More about this item

    Keywords

    Crises; Default; Yield curve; Spreads; Bond duration; Finance; Sovereign maturity choice;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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