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|z 9781498325189
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|a 1018-5941
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|a BD-DhAAL
|c BD-DhAAL
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|a Hatchondo, Juan Carlos.
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|a Non-Defaultable Debt and Sovereign Risk /
|c Juan Carlos Hatchondo, Leonardo Martinez, Yasin Kursat Onder.
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|a Washington, D.C. :
|b International Monetary Fund,
|c 2014.
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|a 1 online resource (25 pages)
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|a IMF Working Papers
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|a <strong>Off-Campus Access:</strong> No User ID or Password Required
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|a <strong>On-Campus Access:</strong> No User ID or Password Required
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|a Electronic access restricted to authorized BRAC University faculty, staff and students
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|a We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent, introducing the possibility of issuing non-defaultable debt for up to 10 percent of aggregate income reduces immediately the spread to 1.4 percent, and implies a welfare gain equivalent to a permanent consumption increase of 0.9 percent. The spread reduction would be only 0.1 (0.2) percentage points higher if the government uses nondefaultable debt to buy back (finance a 'voluntary' debt exchange for) previously issued defaultable debt. Without restrictions to defaultable debt issuances in the future, the spread reduction achieved by the introduction of non-defaultable debt is short lived. We also show that allowing governments in default to increase non-defaultable debt is damaging at the time non-defaultable debt is introduced and inconsequential in the medium term. These findings shed light on different aspects of proposals to introduce common euro-area sovereign bonds that could be virtually non-defaultable.
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|a Mode of access: Internet
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|a Kursat Onder, Yasin.
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|a Martinez, Leonardo.
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|a IMF Working Papers; Working Paper ;
|v No. 2014/198
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|z Full text available on IMF
|u http://elibrary.imf.org/view/journals/001/2014/198/001.2014.issue-198-en.xml
|z IMF e-Library
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