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| dc.title | Persistent Gaps and Default Traps |
| dc.contributor.author | Kapur, Sandeep |
| dc.contributor.author | Catão, Luis |
| dc.contributor.author | Fostel, Ana |
| dc.contributor.orgunit | Capital Markets and Financial Institutions Division |
| dc.coverage | Latin America |
| dc.coverage | The Caribbean |
| dc.date.available | 2014-07-02T00:00:00 |
| dc.date.issue | 2008-06-01T00:00:00 |
| dc.description.abstract | The authors of this paper show how vicious circles in countries' credit histories arise in a model where output persistence is coupled with asymmetric information about output shocks. In such an environment, default signals the borrower's vulnerability to adverse shocks and creates a pessimistic growth outlook. This translates into higher interest spreads and debt servicing costs relative to income, raising the cost of future repayments, thereby creating "default traps". We build a long and broad cross-country dataset to show the existence of a history-dependent "default premium" and of significant effects of output persistence on sovereign creditworthiness, consistent with the model's predictions. |
| dc.format.extent | 36 |
| dc.identifier.doi | http://dx.doi.org/10.18235/0009211 |
| dc.identifier.url | https://publications.iadb.org/publications/english/document/Persistent-Gaps-and-Default-Traps.pdf |
| dc.language.iso | en |
| dc.medium | Adobe PDF |
| dc.publisher | Inter-American Development Bank |
| dc.subject | Financial Policy |
| dc.subject.jelcode | F34 - International Lending and Debt Problems |
| dc.subject.jelcode | G15 - International Financial Markets |
| dc.subject.jelcode | H63 - Debt • Debt Management • Sovereign Debt |
| dc.subject.jelcode | N20 - General, International, or Comparative |
| dc.subject.keywords | Emerging Market Bond Spreads;Output Persistence;Asymmetric Information;Sovereign Risk;Default Premium |
| dc.type | Technical Notes |
| idb.identifier.pubnumber | Technical Notes |
| idb.operation | Not available |