Sovereign debt renegotiation and credit default swaps

• 成果类型: Article
• 署名作者: Salomao, Juliana
• 署名单位: University of Minnesota System; University of Minnesota Twin Cities
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2017.06.005
• 发表日期: 2017
• 页码: 50-63
• 关键词: Credit default swaps; sovereign default; Debt renegotiation; Naked ban; Negative basis

摘要

A credit default swap (CDS) contract provides insurance against default. This paper incorporates the contract into a sovereign default model and demonstrates that the existence of a CDS market results in lower default probability, higher debt levels, and lower financing costs for the country. Uncertainty over the insurance payout when the debt is renegotiated explains why in the data, as the output declines, the CDS spread becomes lower than the bond spread. Finally, my results show that the 2012 CDS naked ban, that decreased the levels of CDS for European countries, is a welfare reducing policy. (C) 2017 Elsevier B.V. All rights reserved.