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Debt Relief

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  • Hayri, A.

Abstract

I develop a model of secondary market pricing of sovereign debt when the creditors can reduce the debt. The sovereign obtains a stochastic revenue flow from the external sector and have a constant debt flow obligation. Default is costly for both the sovereign and the creditors and the possibility to reduce debt creates a surplus. The creditors can capture this surplus only if they can continuously adjust the debt flow.

Suggested Citation

  • Hayri, A., 1996. "Debt Relief," The Warwick Economics Research Paper Series (TWERPS) 459, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:459
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1995-1998/twerp459.pdf
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Claessens, Stijn & van Wijnbergen, Sweder, 1990. "Pricing average price options for the 1990 Mexican and Venezuelan recapture clauses," Policy Research Working Paper Series 541, The World Bank.
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    6. Dooley, Michael & Fernandez-Arias, Eduardo & Kletzer, Kenneth, 1996. "Is the Debt Crisis History? Recent Private Capital Inflows to Developing Countries," The World Bank Economic Review, World Bank, vol. 10(1), pages 27-50, January.
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    10. Elhanan Helpman, 1989. "Voluntary Debt Reduction: Incentives and Welfare," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 580-611, September.
    11. Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
    12. Claessens, Stijn & Diwan, Ishac, 1994. "Recent experience with commercial bank debt reduction: Has the "menu" outdone the market?," World Development, Elsevier, vol. 22(2), pages 201-213, February.
    13. Leonardo Bartolini & Avinash Dixit, 1991. "Market Valuation of Illiquid Debt and Implications for Conflicts among Creditors," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 828-849, December.
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    15. Diwan, Ishac & Spiegel, Mark M., 1994. "Are buybacks back? Menu-driven debt reduction schemes with heterogeneous creditors," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 279-293, October.
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    Cited by:

    1. Ajit Singh & Ann Zammit, 2019. "Globalisation, labour standards and economic development," Chapters, in: Jonathan Michie (ed.), The Handbook of Globalisation, Third Edition, chapter 12, pages 202-224, Edward Elgar Publishing.
    2. Aurore Burietz & Loredana Ureche - Rangau, 2016. "A modern Dionysus' tale: new evidence on the Greek debt crisis and the related costs," Economics Bulletin, AccessEcon, vol. 36(4), pages 1938-1950.
    3. Pierre Mella-Barral & Pierre Tychon, 1996. "Default Risk in Asset Pricing," FMG Discussion Papers dp250, Financial Markets Group.
    4. Michael WESTPHALEN, 2002. "Valuation of Sovereign Debt with Strategic Defaulting and Rescheduling," FAME Research Paper Series rp43, International Center for Financial Asset Management and Engineering.
    5. Jeanneret, Alexandre, 2018. "Sovereign credit spreads under good/bad governance," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 230-246.
    6. Pascal François & Georges Hübner & Jean-Roch Sibille, 2011. "A Structural Balance Sheet Model of Sovereign Credit Risk," Finance, Presses universitaires de Grenoble, vol. 32(2), pages 137-165.
    7. Andrade, Sandro C., 2009. "A model of asset pricing under country risk," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 671-695, June.

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    More about this item

    Keywords

    PRICING; DEBT; ECONOMIC MODELS;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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