Delay and haircuts in sovereign debt: recovery and sustainability

Sayantan Ghosal, Marcus Miller, Kannika Thampanishvong

    Research output: Working paper


    One of the striking aspects of recent sovereign debt restructurings is, conditional on default, delay length is positively correlated with the size of 'haircut', which is size of creditor losses. In this paper, we develop an incomplete information model of debt restructuring where the prospect of uncertain economic recovery and the signalling about sustainability concerns together generate multi-period delay. The results from our analysis show that there is a correlation between delay length and size of haircut. Such results are supported by evidence. We show that Pareto ranking of equilibria, conditional on default, can be altered once we take into account the ex ante incentive of sovereign debtor. We use our results to evaluate proposals advocated to ensure orderly resolution of sovereign debt crises.
    Original languageEnglish
    PublisherUniversity of St Andrews
    Number of pages33
    Publication statusPublished - Aug 2010

    Publication series

    NameSchool of Economics & Finance Discussion Paper
    PublisherUniversity of St Andrews
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X


    • debt restructuring
    • delay
    • haircuts
    • growth
    • sustainability
    • information


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