Non-Defaultable Debt and Sovereign Risk:
We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent, introducin...
Gespeichert in:
| 1. Verfasser: | |
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Washington, D.C
International Monetary Fund
2014
|
| Schriftenreihe: | IMF Working Papers
Working Paper No. 14/198 |
| Online-Zugang: | UBW01 UEI01 LCO01 SBR01 UER01 SBG01 UBG01 FAN01 UBT01 FKE01 UBY01 UBA01 FLA01 UBM01 UPA01 UBR01 FHA01 FNU01 BSB01 TUM01 Volltext |
| Zusammenfassung: | We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent, introducing the possibility of issuing non-defaultable debt for up to 10 percent of aggregate income reduces immediately the spread to 1.4 percent, and implies a welfare gain equivalent to a permanent consumption increase of 0.9 percent. The spread reduction would be only 0.1 (0.2) percentage points higher if the government uses nondefaultable debt to buy back (finance a "voluntary" debt exchange for) previously issued defaultable debt. Without restrictions to defaultable debt issuances in the future, the spread reduction achieved by the introduction of non-defaultable debt is short lived. We also show that allowing governments in default to increase non-defaultable debt is damaging at the time non-defaultable debt is introduced and inconsequential in the medium term. These findings shed light on different aspects of proposals to introduce common euro-area sovereign bonds that could be virtually non-defaultable |
| Beschreibung: | 1 Online-Ressource (25 p) |
| ISBN: | 1498325181 9781498325189 |
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| spelling | Hatchondo, Juan Carlos Verfasser aut Non-Defaultable Debt and Sovereign Risk Hatchondo, Juan Carlos Washington, D.C International Monetary Fund 2014 1 Online-Ressource (25 p) txt rdacontent c rdamedia cr rdacarrier IMF Working Papers Working Paper No. 14/198 We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent, introducing the possibility of issuing non-defaultable debt for up to 10 percent of aggregate income reduces immediately the spread to 1.4 percent, and implies a welfare gain equivalent to a permanent consumption increase of 0.9 percent. The spread reduction would be only 0.1 (0.2) percentage points higher if the government uses nondefaultable debt to buy back (finance a "voluntary" debt exchange for) previously issued defaultable debt. Without restrictions to defaultable debt issuances in the future, the spread reduction achieved by the introduction of non-defaultable debt is short lived. We also show that allowing governments in default to increase non-defaultable debt is damaging at the time non-defaultable debt is introduced and inconsequential in the medium term. These findings shed light on different aspects of proposals to introduce common euro-area sovereign bonds that could be virtually non-defaultable Online-Ausg Kursat Onder, Yasin Sonstige oth Martinez, Leonardo Sonstige oth http://elibrary.imf.org/view/IMF001/22118-9781498325189/22118-9781498325189/22118-9781498325189.xml Verlag URL des Erstveröffentlichers Volltext |
| spellingShingle | Hatchondo, Juan Carlos Non-Defaultable Debt and Sovereign Risk |
| title | Non-Defaultable Debt and Sovereign Risk |
| title_auth | Non-Defaultable Debt and Sovereign Risk |
| title_exact_search | Non-Defaultable Debt and Sovereign Risk |
| title_exact_search_txtP | Non-Defaultable Debt and Sovereign Risk |
| title_full | Non-Defaultable Debt and Sovereign Risk Hatchondo, Juan Carlos |
| title_fullStr | Non-Defaultable Debt and Sovereign Risk Hatchondo, Juan Carlos |
| title_full_unstemmed | Non-Defaultable Debt and Sovereign Risk Hatchondo, Juan Carlos |
| title_short | Non-Defaultable Debt and Sovereign Risk |
| title_sort | non defaultable debt and sovereign risk |
| url | http://elibrary.imf.org/view/IMF001/22118-9781498325189/22118-9781498325189/22118-9781498325189.xml |
| work_keys_str_mv | AT hatchondojuancarlos nondefaultabledebtandsovereignrisk AT kursatonderyasin nondefaultabledebtandsovereignrisk AT martinezleonardo nondefaultabledebtandsovereignrisk |