Default Premium /
We re-assess the view that sovereigns with a history of default are charged only a small and/or short-lived premium on the interest rate warranted by observed fundamentals. Our reassessment uses a metric of such a 'default premium' (DP) that is consistent with asymmetric information models...
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| Formaat: | Tijdschrift |
| Taal: | English |
| Gepubliceerd in: |
Washington, D.C. :
International Monetary Fund,
2015.
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| Reeks: | IMF Working Papers; Working Paper ;
No. 2015/167 |
| Online toegang: | Full text available on IMF |
| Samenvatting: | We re-assess the view that sovereigns with a history of default are charged only a small and/or short-lived premium on the interest rate warranted by observed fundamentals. Our reassessment uses a metric of such a 'default premium' (DP) that is consistent with asymmetric information models and nests previous metrics, and applies it to a much broader dataset relative to earlier studies. We find a sizeable and persistent DP: in 1870-1938, it averaged 250 bps upon market re-entry, tapering to around 150 bps five years out; in 1970- 2011 the respective estimates are about 400 and 200 bps. We also find that: (i) these estimates are robust to many controls including on actual haircuts; (ii) the DP accounts for as much as 60% of the sovereign spread within five years of market re-entry; (iii) the DP rises with market exclusion spells. These findings help reconnect theory and evidence on why sovereign defaults are infrequent and earlier debt settlements are desirable. |
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| Beschrijving item: | <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required |
| Fysieke beschrijving: | 1 online resource (57 pages) |
| Formaat: | Mode of access: Internet |
| ISSN: | 1018-5941 |
| Toegang: | Electronic access restricted to authorized BRAC University faculty, staff and students |