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American Economic Review Vol. 107 No. 10 2017

The Costs of Sovereign Default: Evidence from Argentina

Benjamin Hébert1; Jesse Schreger2

1 Graduate School of Business, Stanford University, 655 Knight Way, Stanford, CA 94305 (email: ) · 2 Columbia Business School, Columbia University, 3022 Broadway, New York, NY 10027, and NBER (email: )

Abstract

We estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of NML Capital, Ltd. v. Republic of Argentina. We find that a 10 percent increase in the probability of default causes a 6 percent decline in the value of Argentine equities and a 1 percent depreciation of a measure of the exchange rate. We examine the channels through which a sovereign default may affect the economy.

DOI
10.1257/aer.20151667
Volume
107
Issue
10
Pages
3119-3145
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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