Sovereign Bailouts and Senior Loans
Chapter in NBER book NBER International Seminar on Macroeconomics 2012 (2013), Francesco Giavazzi and Kenneth D. West, organizers (p. 269 - 291)
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.This chapter is no longer available for free download, since the book has been published. To obtain a copy, you must buy the book.
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Document Object Identifier (DOI): 10.1086/669588Commentary on this chapter:
Comment, Jayasri Dutta, Herakles Polemarchakis
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