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Debt Buybacks, Debt Reduction, and Debt Rescheduling under Asymmetric Information

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  • Fernandez-Ruiz, Jorge

Abstract

In the early nineties there was a significant recovery of many debt-ridden economies after the shift in debt policy implicit in the so-called Brady Plan. Yet, the use of scarce resources from debtor countries to buy back part of their debts remains a controversial feature of this Plan. We use a multiperiod model of debt overhang to show that, under asymmetric information, this transfer of resources emerges naturally as part of the shift from a strategy of debt rescheduling, to one of debt reduction.

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  • Fernandez-Ruiz, Jorge, 2000. "Debt Buybacks, Debt Reduction, and Debt Rescheduling under Asymmetric Information," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 13-27, February.
    • Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:1:p:13-27
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    Cited by:

    1. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-1555, September.
    2. Peter Sinclair, 2011. "Deficits, Debts and Defaults - Past, Present and Future," Discussion Papers 11-20, Department of Economics, University of Birmingham.
    3. Aizenman, Joshua & Fernandez-Ruiz, Jorge, 2006. "Signaling credibility – choosing optimal debt and international reserves," Santa Cruz Department of Economics, Working Paper Series qt2v64t0vh, Department of Economics, UC Santa Cruz.

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