01997cas a2200253 a 4500 AALejournalIMF015389 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513523507 1018-5941 BD-DhAAL BD-DhAAL Catao, Luis. Default Premium / Luis Catao, Rui Mano. Washington, D.C. : International Monetary Fund, 2015. 1 online resource (57 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students 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. Mode of access: Internet Mano, Rui. IMF Working Papers; Working Paper ; No. 2015/167 Full text available on IMF http://elibrary.imf.org/view/journals/001/2015/167/001.2015.issue-167-en.xml IMF e-Library