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Federal Reserve Bank of St. Louis
Working Papers
Sovereign Debt Restructurings
Maximiliano Dvorkin
Juan M. Sanchez
Horacio Sapriza
Emircan Yurdagul
Abstract

Sovereign debt crises generally involve debt restructurings characterized by a mix of face-value haircuts and debt maturity extensions. We develop a quantitative model of endogenous sovereign debt maturity choice and restructuring that captures key stylized facts of debt over the business cycle and during restructuring episodes, including the variation of haircuts, maturity extensions and default duration found in the data. We also find that policy interventions implementing minimum haircuts and redistributing losses away from holders of short term debt improve the outcome of distressed debt restructurings and reduce the frequency of debt distress events. Methodologically, the use of dynamic discrete choice solution methods allows us to smooth decision rules on default and debt portfolio choices, rendering the problem tractable.


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Maximiliano Dvorkin & Juan M. Sanchez & Horacio Sapriza & Emircan Yurdagul, Sovereign Debt Restructurings, Federal Reserve Bank of St. Louis, Working Papers 2018-13, 25 Jun 2018.
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Keywords: Crises; Default; Sovereign Debt; Restructuring; Rescheduling; Country Risk; Maturity; International Monetary Fund; Dynamic Discrete Choice
DOI: 10.20955/wp.2018.013
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