American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Borrowing Costs after Sovereign Debt Relief
American Economic Journal: Economic Policy
vol. 15,
no. 2, May 2023
(pp. 331–58)
Abstract
Can debt moratoria help countries weather negative shocks? We exploit the Debt Service Suspension Initiative (DSSI) to study the bond market effects of deferring official debt repayments. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.Citation
Lang, Valentin, David Mihalyi, and Andrea F. Presbitero. 2023. "Borrowing Costs after Sovereign Debt Relief." American Economic Journal: Economic Policy, 15 (2): 331–58. DOI: 10.1257/pol.20210166Additional Materials
JEL Classification
- F34 International Lending and Debt Problems
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- H63 National Debt; Debt Management; Sovereign Debt
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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