Working Paper: NBER ID: w29872
Authors: Jason Roderick Donaldson; Lukas Kremens; Giorgia Piacentino
Abstract: Sovereigns in distress often engage in debt restructuring, typically negotiating with multiple classes of bondholders at once. We use natural experiments to investigate whether sovereign bondholders benefit from committing not to restructure. We find that committing not to restructure one class of bonds is valuable for not only that class, but, in contrast to received theory, for others too. We develop a model to rationalize these cross-bond spillovers. It points to a system of cross-bond equations that, we show, can be exploited to quantify natural experiments and to estimate unobservable elasticities in terms of a few sufficient statistics.
Keywords: No keywords provided
JEL Codes: G34; H63; K12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| commitment not to restructure treated bonds (G32) | increase in yields of treated bonds (E43) |
| ease of restructuring treated bonds (G12) | decrease in yields of treated bonds (E43) |
| commitment not to restructure treated bonds (G32) | increase in yields of non-English law bonds (G12) |
| ease of restructuring treated bonds (G12) | decrease in yields of non-English law bonds (G12) |
| commitment not to restructure treated bonds (G32) | benefits for bondholders (G32) |