Sovereign CoCos and debt forgiveness

• 成果类型: Article
• 署名作者: Hatchondo, Juan Carlos; Martinez, Leonardo; Onder, Yasin Kursat; Roch, Francisco
• 署名单位: Western University (University of Western Ontario); International Monetary Fund; Ghent University; Universidad Torcuato Di Tella
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2025.103784
• 发表日期: 2025
• 关键词: Sovereign default; CoCos; Debt relief; Reprofiling; Debt forgiveness

摘要

We study a sovereign default model in which the government issues CoCos (contingent convertible bonds) that stipulate a suspension of debt payments upon a sizable increase of the global risk premium (and thus, of the government's borrowing cost). We find that CoCos allow the government to smooth out the effects of risk-premium shocks on consumption, but they increase the default frequency. By suspending debt payments, CoCos imply higher debt levels and, thus, higher default probabilities after adverse shocks. We also study CoCos that, in addition to the payment suspension, stipulate debt forgiveness after adverse shocks. In contrast with no-forgiveness CoCos, debt-forgiveness CoCos reduce debt levels after adverse shocks, thereby reducing default probabilities. Debt-forgiveness CoCos also yield larger welfare gains.