NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sovereign Bailouts and Senior Loans

Christophe Chamley, Brian Pinto

Chapter in NBER book NBER International Seminar on Macroeconomics 2012 (2013), Francesco Giavazzi and Kenneth D. West, organizers (p. 269 - 291)
Conference held June 15-16, 2012
Published in August 2013 by University of Chicago Press
© 2013 by the National Bureau of Economic Research
in NBER Book Series NBER International Seminar on Macroeconomics

Institutional lending in crisis is evaluated from a theoretical point of view. First, the share of senior loans in new loans is irrelevant under a given probability distribution of the country’s resources. Second, seniority may partially alleviate the inefficiency of debt contracts when the distribution of resources is endogenous to the country’s physical

investment and effort toward success. Third, with multiple lending rate equilibria, institutional lending may induce a switch to a lower private loan rate if it can be done in a sufficiently large amount. Fourth, conditions are analyzed under which debt forgiveness is efficient under a financial shock.

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This paper was revised on August 19, 2015

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Document Object Identifier (DOI): 10.1086/669588

Commentary on this chapter:
  Comment, Jayasri Dutta, Herakles Polemarchakis
  Comment, Gisle James Natvik
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