A main puzzle in the sovereign debt literature is that defaults have only
minor effects on subsequent borrowing costs and access to credit. This
paper comes to a different conclusion. We construct the first complete
database of investor losses ("haircuts") in all restructurings with
foreign banks and bondholders from 1970 until 2010, covering 180
cases in 68 countries. We then show that restructurings involving
higher haircuts are associated with significantly higher subsequent
bond yield spreads and longer periods of capital market exclusion.
The results cast doubt on the widespread belief that credit markets
"forgive and forget."
"Sovereign Defaults: The Price of Haircuts." American Economic Journal: Macroeconomics,
Interest Rates: Determination, Term Structure, and Effects
International Lending and Debt Problems
International Financial Markets
National Debt; Debt Management; Sovereign Debt