NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

The Maturity and Payment Schedule of Sovereign Debt

Yan Bai, Seon Tae Kim, Gabriel P. Mihalache

NBER Working Paper No. 20896
Issued in January 2015
NBER Program(s):International Finance and Macroeconomics

This paper studies the maturity and stream of payments of sovereign debt. Using Bloomberg bond data for eleven emerging economies, we document that countries react to crises by issuing debt with shortened maturity but back-load payment schedules. To account for this pattern, we develop a sovereign default model with an endogenous choice of debt maturity and payment schedule. During recessions, the country prefers its payments to be more back-loaded—delaying relatively larger payments—to smooth consumption. However, such a back-loaded schedule is expensive given that later payments carry higher default risk. To reduce borrowing costs, the country optimally shortens maturity. When calibrated to the Brazilian data, the model can rationalize the observed patterns of maturity and payment schedule, as an optimal trade-off between consumption smoothing and endogenous borrowing cost.

download in pdf format
   (417 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20896

Users who downloaded this paper also downloaded* these:
Chetty w20928 Behavioral Economics and Public Policy: A Pragmatic Perspective
Ventura and Martin w20933 The International Transmission of Credit Bubbles: Theory and Policy
Acemoglu, Ozdaglar, and Tahbaz-Salehi w20931 Networks, Shocks, and Systemic Risk
Rodrik w20935 Premature Deindustrialization
Aizenman w20943 The Internationalization of the RMB, Capital Market Openness, and Financial Reforms in China
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us