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Sovereign debt crisis: coordination, bargaining and moral hazard

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Ghosal, Sayantan and Thampanishvong, Kannika (2005) Sovereign debt crisis: coordination, bargaining and moral hazard. Working Paper. Coventry: University of Warwick. Centre for the Study of Globalisation and Regionalisation. Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) (No.159).

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Official URL: http://www2.warwick.ac.uk/fac/soc/csgr/research/wo...

Abstract

We study the interaction between (a) inefficiencies in the post-default debtor-creditor bargaining game and (b) ex ante debtor moral hazard and excessive lending in sovereign debt markets. Conditional on default, selffulfilling debt crisis driven by creditor coordination failure exists and crisis risk is inefficiently high. Strengthening collective action clauses (CACs) has an ambiguous impact on crisis risk. Even with ex ante debtor moral hazard, crisis risk remains inefficiently high. Moreover, even without debtor moral hazard, excessive lending by creditors generates, endogenously, positive default probability. We establish the case for a formal sovereign bankruptcy procedure to complement the role of CACs.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HJ Public Finance

Divisions:

Faculty of Social Sciences > Economics
Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation

Library of Congress Subject Headings (LCSH):

Debts, Public, Financial crises, Moral hazard, Debt relief

Series Name:

Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)

Publisher:

University of Warwick. Centre for the Study of Globalisation and Regionalisation

Place of Publication:

Coventry

Official Date:

March 2005

Dates:

Date	Event
March 2005	Published

Number:

No.159

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Description:

Completed December 2004

Funder:

Economic and Social Research Council (Great Britain) (ESRC)

Grant number:

R000219236 (ESRC)

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