Coordination failure, moral hazard and sovereign bankruptcy procedures
Ghosal, Sayantan and Miller, Marcus, 1941- (2003) Coordination failure, moral hazard and sovereign bankruptcy procedures. Discussion Paper. London: Centre for Economic Policy Research (Great Britain). (Discussion paper (Centre for Economic Policy Research (Great Britain))).
WRAP_Miller_CEPR-DP3729.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=3...
We study a model of sovereign debt crisis that combines problems of creditor co-ordination and debtor moral hazard. Solving the sovereign debtor’s incentives leads to excessive ‘rollover failure’ by creditors when sovereign default occurs. We discuss how the incidence of crises might be reduced by international sovereign bankruptcy procedures, involving ‘contractibility’ of sovereign debtor’s payoffs, suspension of convertibility in a ‘discovery’ phase and penalties in case of malfeasance. In relation to the current debate, this is more akin to the IMF’s Sovereign Debt Restructuring Mechanism than the Collective Action Clauses which some promote as an alternative.
|Item Type:||Working or Discussion Paper (Discussion Paper)|
|Subjects:||H Social Sciences > HJ Public Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||International Monetary Fund, Debts, Public, Moral hazard, Debt relief, International economic relations|
|Series Name:||Discussion paper (Centre for Economic Policy Research (Great Britain))|
|Publisher:||Centre for Economic Policy Research (Great Britain)|
|Place of Publication:||London|
|Number of Pages:||41|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC), University of Warwick. Centre for the Study of Globalisation and Regionalisation (CSGR)|
|Grant number:||R000239216 (ESRC)|
|References:||bibitem Aghion, Ph., Ph. Bacchetta and A. Banerjee (2000), ‘A Simple Model of Monetary Policy and Currency Crises’, European Economic Review, vol. 44, pp.728-38. bibitem Barro, R.(1998). ‘The IMF Doesn’t Put Out Fires, It Starts Them’, Business Week (December 7), p. 18. bibitem Bartholemew, E., E. Stern and A. Liuzzi (2002). ‘Two-step Sovereign Debt Restructuring’, Mimeo. New York: JP Morgan Chase and co. bibitem Birdsall, N. and J. Williamson (2002). Delivering on Debt Relief: From IMF Gold to a New Aid Architecture, Washington, D.C.: Institute for International Economics. bibitem Bulow, J., K. Rogoff (1989a). ‘A Constant Recontracting Model of Sovereign Debt’, Journal of Political Economy, vol. 97(1), pp. 155-78. bibitem Bulow, J. and K. Rogoff (1989b). ‘Sovereign Debt: Is to Forgive to Forget?’, American Economic Review, vol.79(1), pp. 43-50. bibitem Bulow, J. and K. Rogoff (1990). ‘Cleaning up third-world debt without getting taken to the cleaners.’ Journal of Economic Perspectives, vol. 4(1), pp.31-42. bibitem Buchheit, L. (1999). ‘A Lawyer’s Perspective on the New International Financial Architecture’, Journal of International Banking Law, vol.14(7), pp. 225-9. bibitem Buchheit, L. and G. Mitu Gulati (2000). ‘Exit Consents in Sovereign Bond Exchanges’, UCLA Law Review, vol. 48, pp. 59-84. bibitem Buchheit, L. and G. Mitu Gulati (2002). ‘Sovereign Bonds and the Collective Will’, Working Paper No. 34. Georgetown University Law Center, Washingtion D.C. bibitem Calvo, G. (1999). ‘Contagion in Emerging Markets: When Wall Street is a Carrier’, Mimeo. bibitem Calvo, G., A. Izquierdo and E. Talvi (2002). ‘Sudden Stops, the Real Exchange Rate and Fiscal Sustanability: Argentina’s Lessons’, Mimeo. Inter-American Development Bank (July). bibitem Cline, W. and K. Barnes (1997). “Spreads and Risks in Emerging Market Lending”, Washington, D.C.: Institute of International Finance, December. bibitem Cooper, R. N. (1998). ‘Should Capital-Account Convertibility Be a World Objective?’ In P. Kenen et al. (1998). Should the IMF pursue capital-account convertibility? Essays in International Finance, No. 201 (May), Princeton University. bibitem Cordella, T. (1998). ‘Can Short-term Capital Controls Promote Capital Inflows’, CEPR Discussion Paper No. 2011. bibitem Diamond, D. and P. Dybvig (1983). ‘Bank runs, Deposit Insurance, and Liquidity’, Journal of Political Economy, vol. 91, pp. 401-19. bibitem Eaton, J. (2002). ‘Standstills and an International Bankruptcy Court’, Paper presented to Bank of England Conference on “The Role of the Official and Private Sectors in Resolving International Financial Crises”. Mimeo, New York University (July). bibitem Eichengreen, B. (1999). Toward a New Financial Architecture: A Practical Post-asia Agenda, Washington, D.C: Institute for International Economics. bibitem Eichengreen, B. and M. Bordo (2001). ‘Crises Now and Then: What Lessons from the Last Era of Financial Globalization?’. Mimeo. Forthcoming in P Mizen (ed) Monetary History, Exchange rates and Financial Markets: Essays in Honour of Charles Goodhart, Chapter 3, Volume 2, Northampton: Edward Elgar. bibitem Eichengreen, B. and R. Portes (1995). Crisis? What crisis? Orderly workouts for Sovereign Debtors, London: CEPR. bibitem Fischer, S. (1999). ‘On the Need for an International Lender of Last Resort’, Journal of Economic Perspectives, vol. 13(4), pp. 85-104. bibitem Goldstein, M. (1997). The Case for an International Banking Standard, Washingtion D.C.:IIE bibitem Group of Ten Report (The Rey Report) (1996). The Resolution of Sovereign Liquidity Crises, Washington D.C.: IMF. bibitem Harsanyi, J. and R. Selten (1984). Equilibrium selection in Games, New York: John Wiley. bibitem Hellman, T., K.Murdock and J. Stiglitz (2000). ‘Liberalization, Moral Hazard in Banking and Prudential Regulation: Are Capital Requirements Enough?’ American Economic Review, vol. 90(1), pp. 147-65. bibitem Jeanne, O.. (2001). ‘Sovereign Debt Crises and the International Financial Architecture’, Mimeo. IMF (December). bibitem Jeanne, O. and J. Zettelmeyer (2001). ‘International Bailouts, Moral Hazard and Conditionality’, Economic Policy: A European Forum, vol.0(33), pp. 407-24. bibitem Kaminsky, G. and C. Reinhart (1999). ‘The Twin Crises: The Causes of Banking and Balance-of-Payments Problems’. American Economic Review, vol. 89, pp.473-500. bibitem Kiyotaki, N. and J. Moore (1997), ‘Credit Cycles’, Journal of Political Economy, vol.105, pp.211-248. bibitem Kletzer, K. and B. Wright (2000). ‘Sovereign Debt as Intertemporal Barter’, American Economic Review, vol. 90(3), pp. 621-39. bibitem Kremer, M. and S. Jayachandran (2001). ‘Odious Debt’, Mimeo, Harvard University, (November). bibitem Krugman, P. (1998). ‘Saving Asia: It’s Time to Get Radical’, Fortune, 7 September, pp. 33-8. bibitem Krueger, A. (2001). ‘International Financial Architecture for 2002: A New Approach to Sovereign Debt Restructuring’, Mimeo, IMF. bibitem Krueger, A. (2002). A New Approach to Sovereign Debt Restructuring. International Monetary Fund: Washington D.C. bibitem Masson, P. (1999). ‘Contagion: monsoonal effects, spillovers and jumps between multiple equilibria’, in Agenor et al (eds.), The Asian Financial Crisis: Causes, Contagion and Consequences, Cambrige: Cambridge University Press. bibitem Miller, M. (2002). ‘Sovereign Debt Restructuring: New Articles, New Contracts – or No Change?’, International Economics Policy Briefs, No. PB02-3, Washington, D.C.: Institute for International Economics. bibitem Miller, M. and L. Zhang (2000). ‘Sovereign Liquidity Crises: The Strategic Case for a Payments Standstill’, ECONOMIC JOURNAL, vol. 100(460), pp. 335-62. bibitem Morris, S. and H. Shin (1998). ‘Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks’, American Economic Review, Vol. 88(3), pp. 587-97. bibitem Peck, J. and K. Shell (forthcoming). ‘Sunspots in a model of bank runs’, Journal of Political Economy. bibitem Radelet, S. and J. Sachs (1998). ‘The East Asian Financial Crisis: Diagnosis, Remedies and Prospects’, Brooking Papers on Economic Activity, 1, pp. 1-90. bibitem Rodrik, D. (1998). ‘Who Needs Capital-account Convertibility’, In P. Kenen et al. (1998). Should the IMF pursue capital-account convertibility? Essays in International Finance, No. 201 (May), Princeton University. bibitem Rogoff, K. and J. Zettelmeyer (2002). ‘Early ideas on Sovereign Bankruptcy: A Survey’, IMF Working Paper, No. 57, Washington, D.C. bibitem Rogoff, K. (1999) ‘International Institutions for Reducing Global Financial Instability’, Journal of Economic Perspectives, Vol. 13(4), pp. 24-42. bibitem Sachs, J. (1995). ‘Do We Need an International Lender of Last Resort?’, mimeo, Princeton University. bibitem Sachs, J., A. Tornell and A.Velasco (1996). ‘The Mexican Peso Crisis: Sudden death or death foretold?’, Journal of International Economics, vol. 41, pp.265-83. bibitem Smalhout, J. (2001). ‘Cavallo High Stakes Confidence Game’, Euromoney, (May). bibitem Soros, G. (1998). Crisis of Global Capitalism. New York: Public Affairs Press. bibitem Stigltiz, J. (1998). ‘Boats, Planes and Capital Flows’, Financial Times, March 25. bibitem Stiglitz, J. (2002a). ‘Sovereign Bankruptcy: Notes on Theoretical Frameworks and Policy Analyses’, Mimeo, Columbia University. bibitem Stiglitz, J. (2002b). Globalization and its discontents. London: Penguin Books. bibitem Taylor, J. (2002). ‘Sovereign Debt Restructuring: A US Perspective’, Mimeo, Department of the Treasury, Washington D.C. (April). bibitem Thomas, J. (2002). ‘Bankruptcy Proceedings for Sovereign State Insolvency and their Effect on Capital Flows’, Mimeo, University of Edinburgh (November). bibitem Tirole, J. (2002). Financial Crises, Liquidity and the International Monetary System, Princeton and Oxford: Princeton University Press. bibitem Tobin, J. (1999). ‘Financial Globalization: Can National Currencies Survive?’, Cowles Foundation Paper No. 985, Yale University. bibitem Truman E. (2001). ‘Perspectives on External Financial Crises’, Mimeo. Washington D.C.: Institute for International Economics (December). bibitem Williamson, J. (1995). ‘The Management of Capital Inflows’, Pensamiento Iberoamericano, (January-June). bibitem Williamson, J. (1999). ‘Implications of the East Asian Crisis for Debt Management’, Mimeo. (Available at www.iie.com.)|
Actions (login required)