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Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt

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  • Cole, Harold L
  • Dow, James
  • English, William B

Abstract

This paper develops a simple model of sovereign debt in which defaulting nations are excluded from capital markets and regain access by making partial repayments. This implication of the model is consistent with the historical evidence that defaulting countries return to international loan markets soon after a settlement but after varying periods of exclusion. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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  • Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-385, May.
    • Handle: RePEc:ier:iecrev:v:36:y:1995:i:2:p:365-85
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    1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077, Elsevier.
    2. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-385, May.
    3. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-1089, July.
    4. Kahn, J.A., 1989. "Credible Borrowing Constraints With Renegotiable Debt," RCER Working Papers 175, University of Rochester - Center for Economic Research (RCER).
    5. Garber, Peter M., 1991. "Alexander Hamilton's market-based debt reduction plan," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 79-104, January.
    6. Fernandez, R. & Rosenthal, R.W., 1988. "Sovereign-Debt Renegotiations: A Strtegic Analysis," Papers 85, Boston University - Center for Latin American Development Studies.
    7. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    8. Joel Sobel & Takahashi, 1983. "A Multi-stage Model of Bargaining," Levine's Working Paper Archive 255, David K. Levine.
    9. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    10. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236, National Bureau of Economic Research, Inc.
    11. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
    12. Laves, Walter H. C., 1935. "Foreign Bondholders and American State Debts. By Reginald C. McGrane. (New York: The Macmillan Company. 1935. Pp. vii, 410.)," American Political Science Review, Cambridge University Press, vol. 29(4), pages 686-687, August.
    13. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
    14. Herschel I. Grossman, 1987. "Lending to an Insecure Sovereign," NBER Working Papers 2443, National Bureau of Economic Research, Inc.
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