Title: Sovereign defaults at home and abroad
Download PDF: Working Paper 60
This paper provides a systematic comparison of domestic and external sovereign defaults from 1980 to 2018, covering details of the default events, the different macro-financial, political and geo-economic environments in which they occur, and type of restructuring applied.
Authors: Aitor Erce (Navarra Public University), Enrico Mallucci (Board of Governors of the Federal Reserve System) and Mattia Picarelli (ESM)
Abstract:
We systematically compare sovereign defaults on debt issued externally and domestically. Defaults at home and abroad are equally frequent, and governments often default selectively. Compared to domestic defaults, external defaults are larger and take longer to resolve. Both external and domestic defaults are often resolved through maturity extensions and coupon reductions. Face value reductions are infrequent, especially as part of domestic restructurings. Yet, domestic defaults are more punitive, as they are associated with larger creditor losses. We also document that domestic and external sovereign defaults occur in markedly different macro-financial, political and geo-economic environments. Our stylised facts inform a growing theoretical literature concerned with sovereign defaults in the presence of domestic debt markets.
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Keywords: Public debt, sovereign default, domestic market, external market, stylised facts, theory.
JEL codes: E62, E65, F34, G01, H12, H63, K00, K41