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Publication year
A Seniority Arrangement for Sovereign Debt
Resource type
Authors/contributors
- Chatterjee, Satyajit (Author)
- Eyigungor, Burcu (Author)
Title
A Seniority Arrangement for Sovereign Debt
Abstract
A sovereign's inability to commit to a course of action regarding future borrowing and default behavior makes long-term debt costly (the problem of debt dilution). One mechanism to mitigate this problem is the inclusion of a seniority clause in debt contracts. In the event of default, creditors are to be paid off in the order in which they lent (the "absolute priority" or "first-in-time" rule). In this paper, we propose a modification of the absolute priority rule suited to sovereign debts contracts and analyze its positive and normative implications within a quantitatively realistic model of sovereign debt and default. (JEL E32, E44, F34, G15, H63, O16, O19)
Publication
American Economic Review
Volume
105
Issue
12
Pages
3740-65
Date
2015-12
Citation
Chatterjee, S., & Eyigungor, B. (2015). A Seniority Arrangement for Sovereign Debt. American Economic Review, 105, 3740–3765.
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