Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel

92 Pages Posted: 25 Apr 2019

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund (IMF) Research Department

Marcos Chamon

International Monetary Fund (IMF) - Research Department

Aitor Erce

UPNA

Akira Sasahara

Keio University

Multiple version iconThere are 3 versions of this paper

Date Written: March 2019

Abstract

Sovereign debt restructurings are associated with declines in GDP, investment, bank credit, and capital flows. The transmission channels and associated output and banking sector costs depend on whether the restructuring takes place preemptively, without missing payments to creditors, or whether it takes place after a default has occurred. Post-default restructurings are associated with larger declines in bank credit, an increase in lending interest rates, and a higher likelihood of triggering a banking crisis than pre-emptive restructurings. Our local projection estimates show large declines in GDP, investment, and credit amplified by severe sudden stops and transmitted through a 'capital inflow-credit channel'.

Keywords: Sovereign debt restructuring, Business cycles, Capital inflows, Domestic debt, Current account deficits, Sovereign Debt, Sovereign Defaults, Sovereign Debt Restructurings, GDP Growth, Investment, Banking Crisis, Local Projection, debt restructure, bank crisis, restructure, haircut, inflow

JEL Classification: F34, F41, H63, E01, F3, G21, E52

Suggested Citation

Asonuma, Tamon and Chamon, Marcos and Erce, Aitor and Sasahara, Akira, Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel (March 2019). IMF Working Paper No. 19/69, Available at SSRN: https://ssrn.com/abstract=3377469

Tamon Asonuma (Contact Author)

International Monetary Fund (IMF) Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Marcos Chamon

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-5867 (Phone)

Aitor Erce

UPNA ( email )

Pamplona
Spain

Akira Sasahara

Keio University ( email )

2-15-45 Mita, Ninato-ku
Tokyo 1088345
Japan

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