Debt Dilution and Sovereign Default Risk

• 成果类型: Article
• 署名作者: Hatchondo, Juan Carlos; Martinez, Leonardo; Sosa-Padilla, Cesar
• 署名单位: Indiana University System; Indiana University Bloomington; International Monetary Fund; McMaster University
• 刊物名称: JOURNAL OF POLITICAL ECONOMY
• ISSN/ISSBN: 0022-3808
• DOI: 10.1086/688081
• 发表日期: 2016
• 页码: 1383-1422
• 关键词: business cycles; interest-rates; maturity

摘要

We measure the effects of debt dilution on sovereign default risk and study debt covenants that could mitigate these effects. We calibrate a baseline model with endogenous debt duration and default risk (in which debt can be diluted) using data from Spain. We find that debt dilution accounts for 78 percent of the default risk in the baseline economy and that eliminating dilution increases the optimal duration of sovereign debt by almost 2 years. Eliminating dilution also increases consumption volatility but still produces welfare gains. The debt covenants we study could help enforcing fiscal rules.