Affiliation:
1. University of Mannheim (email: ).
2. Kiel Institute for the World Economy (email: ).
3. International Monetary Fund and CEPR (email: ).
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. (JEL F34, G12, H63, O16)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
1 articles.
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1. Sovereign Debt in the Twenty-first Century;Journal of Economic Literature;2023-06-01