TY  - JOUR
AU  - Goldberg,Linda S.
AU  - Spiegel,Mark
TI  - Debt Write-Downs and Debt-Equity Swaps in the Two Sector Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3121
PY  - 1989
Y2  - August 1989
UR  - http://www.nber.org/papers/w3121
L1  - http://www.nber.org/papers/w3121.pdf
N1  - Author contact info:
Linda S. Goldberg
Federal Reserve Bank-New York
33 Liberty Street
New York, NY 10045
Tel: 212/720-2836
Fax: 212/720-6831
E-Mail: linda.goldberg@ny.frb.org

Mark M. Spiegel
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA 94105
E-Mail: mark.spiegel@sf.frb.org
AB  - "Debt overhang" models have motivated the possibility of Pareto-improving "market-based debt-reduction schemes" under an assumption of creditor seizure in bad states. These models usually reach the conclusion that while pure debt forgiveness is in the interest of debtor nations, debt repurchase programs are not. This paper introduces a "safe sector" into the debtor nation which is unexposed to seizure during default states. Two important results which emerge are that debt forgiveness is not necessarily in the interest of all debtors, and the potential for Pareto-improving debt-equity swaps is magnified.
ER  -