A Seniority Arrangement for Sovereign Debt | Zendy

Satyajit Chatterjee | Zendy; Burcu Eyigungor | Zendy

AI Assistant Blog Pricing

Home ZAIA Blog

Open Access

A Seniority Arrangement for Sovereign Debt

Author(s) -

Satyajit Chatterjee,

Burcu Eyigungor

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20130932

Subject(s) - sovereign default , seniority , economics , debt , default , commit , creditor , monetary economics , senior debt , sovereignty , internal debt , recourse debt , debt levels and flows , sovereign debt , finance , computer science , database , politics , political science , law

A sovereign’s inability to commit to a course of action regarding future borrowing and default behavior makes long-term debt costly (the problem of debt dilution). One mechanism to mitigate this problem is the inclusion of a seniority clause in debt contracts. In the event of default, creditors are to be paid off in the order in which they lent (the “absolute priority” or “first-in-time” rule). In this paper, we propose a modification of the absolute priority rule suited to sovereign debts contracts and analyze its positive and normative implications within a quantitatively realistic model of sovereign debt and default. (JEL E32, E44, F34, G15, H63, O16, O19)

The content you want is available to Zendy users.

Already have an account? Click here to sign in.

Having issues? You can contact us here

Accelerating Research