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The price of haircuts: private and official default

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This paper studies the relationship between sovereign debt default and sovereign credit risk by taking into account the depth of a debt restructuring and by distinguishing between commercial and officialdebt. We take rating agencies as well as bond yield spreads(EMBIG)as measures of a countrys creditworthiness. Our results show that defaults with private creditors seem to involve some reputational costs up to seven years since the last agreement,while offcial defaulters may even benefit from the restructuring episodes.Therefore,we find evidence that official and private defaults may have different costs and then induces elective defaults.

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  • Silvia Marchesi & Tania Masi, 2020. "The price of haircuts: private and official default," Development Working Papers 460, Centro Studi Luca d'Agliano, University of Milano, revised 06 Feb 2020.
    • Handle: RePEc:csl:devewp:460
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    1. Marchesi, Silvia & Masi, Tania, 2021. "Life after default. Private and official deals," Journal of International Money and Finance, Elsevier, vol. 113(C).
    2. Marchesi, Silvia & Masi, Tania, 2020. "Sovereign rating after private and official restructuring," Economics Letters, Elsevier, vol. 192(C).

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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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