Working Paper: CEPR ID: DP3771
Authors: Barry Eichengreen; Ashoka Mody
Abstract: Reform of the mechanisms and procedures through which problems of sovereign debt sustainability are resolved is at the centre of the effort to make the international financial system less crisis prone. The purported difficulty of coordinating creditors holding distinct bond issues provides one basis for choosing among the reform proposals currently on the table. We assess the significance of this difficulty (?the aggregation problem?) using evidence on the pricing of international bonds. Our evidence suggests that investors do perceive that aggregation has costs. Plausibly, they worry most about difficulties of information sharing and coordination across issues when the debt in question is an obligation of a country with a significant perceived probability of having to restructure.
Keywords: crises; sovereign debt
JEL Codes: F00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of separate bond issues (H74) | launch spread (Y60) |
| number of separate bond issues (H74) | restructuring costs (G32) |
| aggregation costs (E10) | borrowing conditions (F34) |
| number of separate bond issues (H74) | investors' premium (G19) |
| credit rating (G21) | launch spread (Y60) |
| high perceived probability of restructuring (G32) | concerns about aggregation costs (C43) |