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A behavioural approach to sovereign debt reschedulings

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  • B. C. Lee
  • John Powell

Abstract

An early-warning model which predicts the extent of sovereign debt reschedulings is developedusing the behavioural assumption thatindividuals (and governments) develop minimum consumption requirements. Sharp and unexpected falls in income and consumption can threaten these minimum requirements, thus foreshadowing the magnitude of sovereign debt reschedulings as government decision-makers choose to suspend full sovereign debt servicing in order to avoid extreme marginal utility losses. This implication is empirically analysed using data for 88 countries.

Suggested Citation

  • B. C. Lee & John Powell, 1995. "A behavioural approach to sovereign debt reschedulings," Applied Economics Letters, Taylor & Francis Journals, vol. 2(3), pages 64-66.
    • Handle: RePEc:taf:apeclt:v:2:y:1995:i:3:p:64-66
    DOI: 10.1080/135048595357582
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    References listed on IDEAS

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    1. Gasiorowski, Mark J., 1985. "The structure of Third World economic interdependence," International Organization, Cambridge University Press, vol. 39(2), pages 331-342, April.
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    3. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
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