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Domestic vs external sovereign debt servicing: an empirical analysis
Author(s) -
Kohlscheen Emanuel
Publication year - 2010
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.414
Subject(s) - default , economics , monetary economics , sovereign default , debt , external debt , sovereign debt , sample (material) , sovereignty , econometrics , macroeconomics , finance , chemistry , chromatography , politics , political science , law
This paper analyzes the incidence of domestic and external debt crises for a sample of 53 emerging economies between 1980 and 2005. Even though there is substantial time variation in the default rates during the period, sovereign default rates for domestic debts are typically lower than those for external debts. The incidence of both types of defaults is explained by means of the estimation of independent and simultaneous limited‐dependent variable models. The results show that while there is considerable evidence that external defaults trigger domestic defaults, evidence for the reverse link disappears when default propensities are estimated in a simultaneous equation model. Copyright © 2009 John Wiley & Sons, Ltd.