02072cas a2200337 a 4500 AALejournalIMF022674 230101c9999 xx r poo 0 0eng d 20.00 USD 9798400207648 1018-5941 BD-DhAAL BD-DhAAL Hatchondo, Juan Carlos. Sovereign Cocos / Juan Carlos Hatchondo, Leonardo Martinez, Kursat Onder, Francisco Roch. Washington, D.C. : International Monetary Fund, 2022. 1 online resource (26 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 study a model of equilibrium sovereign default in which the government issues cocos (contingent convertible bonds) that stipulate a suspension of debt payments when the government faces liquidity shocks in the form of an increase of the bondholders' risk aversion. We find that in spite of reducing the frequency of defaults triggered by liquidity shocks, introducing cocos increases the overall default frequency. By mitigating concerns about liquidity, cocos make indebtedness and default risk more attractive for the government. In contrast, cocos that stipulate debt forgiveness when the government faces the shock, achieve larger welfare gains by reducing default risk. Mode of access: Internet Current Account Adjustment imf Default Risk imf International Lending and Debt Problems imf Short-Term Capital Movements imf Sovereign Cocos imf Martinez, Leonardo. Onder, Kursat. Roch, Francisco. IMF Working Papers; Working Paper ; No. 2022/078 Full text available on IMF https://elibrary.imf.org/openurl?genre=journal&issn=1018-5941&volume=2022&issue=078 IMF e-Library