Sovereign Debt Conversion in a Dynamic Portfolio Framework

Authors

  • Felipe Morandé Graduate Program in Economics ILADES/Georgetown University
  • Klaus Schmidt-Hebbel Country Economics Department, The World Bank image/svg+xml

Keywords:

sovereign debt, debt conversion, secondary market prices, portfolio model, rational expectations, debt swaps

Abstract

This paper analyzes the dynamics of secondary market prices of sovereign debt under alternative market-based debt conversion schemes. In the framework of a portfolio model for rational forward-looking asset holders, the trajectories of secondary market prices are shown to be very sensitive to debtor country welfare (wealth) gains derived from the debt swaps. These gains will arise if debt conversion is (partially) foreign financed or if the debtor country's cost of the debt exceeds the secondary market price.

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References

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Published

1989-04-30

How to Cite

Morandé, F., & Schmidt-Hebbel, K. (1989). Sovereign Debt Conversion in a Dynamic Portfolio Framework. Economic Analysis Review, 4(1), 51–69. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/266

Issue

Vol. 4 No. 1 (1989)

Section

Articles

License

Copyright (c) 1989 Felipe Morandé, Klaus Schmidt-Hebbel

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

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