Questions tagged [default]

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non strategic sovereign default

Much of the sovereign default literature (e.g., Arellano (2008), Bulow and Rogoff (1989)), considers that sovereign default is strategic: i.e., defaults occurs if the current benefits outweigh ...
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Does IMF consider the international reputation of a country?

Hi I have three question below which I tried searching on internet and read a lot of literature as well. Besides all the literature sources I need to know some practical knowledge of people out there. ...
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52 views

Can the US government selectively cancel debt held by the Federal Reserve?

Sort of a follow-up to this question on the Politics SE, which asked about the US government cancelling debt held by China. From the answers to that question, this kind of selective default is not ...
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What exactly is the risk Italy's high debt to GDP ratio poses to Eurozone and EU? [closed]

Background Us laymen read all around that Italy's weak economy and its high government debt/high debt to GDP ratio is threatening the financial stability and health of Eurozone and EU. However, little ...
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2answers
38 views

Was there a drop in liquidity in the corporate bond market during the Global Financial Crisis?

It is often said that the increase in the perceived default risk led to a fall in the demand for the corporate bonds. This led to the fall in their prices and hence, their interest rates rose ...
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Calculating risk interest rate within a two period model

I am trying to calculate how to determine the interest rate ( = risk free rate + premium) within the following model where a consumer decides to invest in a safe asset or in a risky asset. The utility ...
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1answer
57 views

Effect of default risk on the interest rate of bonds

So I want to calculate the effect of default risk on the required interest of bonds (not on the price of bonds as that is normalized to one). I thought of using the consumption capital asset model ...
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Investments during recession

During Recession, banks loans decrease which leads to financial constraints and ultimately Investment suffers and declines. my question is - "Are loans lower because of demand or supply?" My ...
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1answer
47 views

U.S. Treasury defaulting on its bond obligations to China

I was listening to a podcast featuring Michael Lewis (author of Flashboys and Moneyball), who mentioned a black swan scenario where the administration would threaten to selectively not pay its ...
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1answer
42 views

What can explain increasing exports after default episodes?

I am going through a paper on sovereign default by Mendoza and Yue (2012), in which defaults are explained in terms of how firms that use foreign intermediate inputs lose access to international ...
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26 views

How to determine the default probability of a county in a bond that is not in its native currency?

Consider the following case: Country P uses the currency Euro and gives p percent interest on a one year bond issued in Euro. Country Q uses the currency TL and gives q percent interest on a one ...
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1answer
313 views

What is the fundamental problem with Pakistan's economy?

Why is Pakistan repeatedly defaulting? 2008 - Pakistan seeks USD9 billion IMF bailout to avert crisis 2013 - Saudi Arabia come to Pakistan’s Rescue with USD15 Billion Energy Bailout Deal 2014 - ...
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1answer
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Why obligation acceleration triggers Credit-Default Swaps (CDS)?

ISDA Credit Event definitions state that CDS can be triggered in an event of Obligation Acceleration. What does that mean? If for example, a country pays a bond 1 year prior to maturity are CDS ...
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1answer
179 views

Swaps and systemic risk

I understand the systemic risk that can be associated with the trading of credit default swaps, but is it the same with interest rate swaps? What was the "default rate" on interest rate swaps during ...
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1answer
101 views

Argentine default: "Rights upon future offers"

Argentina defaulted on its sovereign debt in 2002. It has reached an agreement with most but not all of its creditors. Wikipedia has a pretty good summary. The agreements included a 70% hair cut but ...
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1answer
53 views

Why do Latin American countries fare among the worst at managing inflation

Does it have to do with cultural factors? Ex: they were colonies of Spain and Portugal who themselves are not that great at managing their economies relative to other western European countries.
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Regression on default rates and backward extrapolation

Suppose that we have bankruptcy data representative for Small and Medium-sized enterprises in a country. We can therefore calculate default rates. Furthermore suppose that we found that GDP, ...
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Lack of historical data for calibration of probability of default

It is a known fact that default rates seem to exhibit cyclic behavior. Most probability of default models use one-year averages of default rates to calibrate the models. The one-year averages should ...
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2answers
415 views

Why would a government bail out private banks?

If the private banks never learn from history and keep giving credits to it's clients for overpriced acquisitions, and then they enter default why would the government give them free money or buy ...
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690 views

If I don't pay a debt, then the creditor takes my goods. Why, then, do Greek creditors not take Greece?

Normally, when you don't pay a debt, your creditors take your goods (house, car, etc). If Greece cannot pay its debt, can its creditors take Greek goods (structures, cities, industries, lands, etc)? ...
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4answers
339 views

Greece default and why are US States not seen defaulting?

Reading various articles, it is clear that Greece is in the situation simply due to the fact that they have indulged in overspending on their national budget for over a decade, and with the 2008 ...
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Any serious macro models for Greece's possible default or eurozone exit?

Since each news outlet says something about Greece these days, I wonder what serious economic research backs decisions made over the last seven years? The IMF papers on austerity, both early ones and ...
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2answers
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Greek default versus Euro exit

Talk about Greece leaving the Euro has been reignited by the recent election of Syrzia, with some again talking about how it is practically inevitable. Why are these people viewing a Greek default as ...
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What is the difference betwene a partial default and having debts partially written off?

From The Daily Telegraph: The new Syriza-led government has demanded some form debt write-off on the country's €317bn liabilities, two-thirds of which are owned to official creditors in the form of ...