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Sovereign risk after sovereign restructuring. Private and official default

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  • Silvia Marchesi
  • Tania Masi

Abstract

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 official debt. We take different proxies for credit risk measures, such as rating agencies and institutional investorsÂ’ratings as well as bond yield spreads (EMBIG). By controlling for both the occurrence and the magnitude of debt defaults, we Â…nd that commercial and official defaults are associated to different outcomes. Private defaults seem to involve some reputational costs up to seven years since the last agreement, while official defaulters are not affected (or may even benefit) by the restructuring episodes. Using the Synthetic Control Method, we fiÂ…nd further evidence for the heterogeneity of the economic impact of debt restructurings, confiÂ…rming that official and private defaults may have different costs and then induce selective defaults.

Suggested Citation

  • Silvia Marchesi & Tania Masi, 2019. "Sovereign risk after sovereign restructuring. Private and official default," Working Papers 423, University of Milano-Bicocca, Department of Economics, revised Nov 2019.
    • Handle: RePEc:mib:wpaper:423
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    Cited by:

    1. Marchesi, Silvia & Masi, Tania, 2021. "Life after default. Private and official deals," Journal of International Money and Finance, Elsevier, vol. 113(C).
    2. 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.

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    More about this item

    Keywords

    Sovereign defaults; Credit Rating Agencies; Institutional Investors; Synthetic control method;
    All these keywords.

    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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