Staff Seminar

Global Macroeconomics and Global Governance - Josefin Meyer & Christoph Trebesch

10 Oct 2017

From the IFW event series: Research Seminar

14:00

15:00

Institut für Weltwirtschaft

Speaker

Josefin Meyer (Kiel Institute, RA "Global Macroeconomics and Global Governance" and LMU Munich)

Abstract

How risky is sovereign debt? And under which circumstances have creditors suffered losses on their sovereign debt holdings? These question have regained crucial relevance for investors and policymakers, in particular in advanced economies. In this paper, we take a long-run perspective and compute investor returns and investor losses (haircuts) in sovereign debt markets since 1815 and worldwide. To our knowledge, this is the most comprehensive dataset on sovereign bonds and debt crises ever compiled. The results provide unique new insights on the asset class of sovereign debt and put recent crisis experiences in emerging markets and in the Eurozone into historical perspective. For example, we find that the size and variation in creditor losses (haircuts) is strikingly similar over the past 200 years, despite changes in institutions, financial markets and economic fundamentals over time. We also find that cases of outright debt repudiation and debt cancelations (haircuts of 100 percent) are surprisingly rare.

Authors

Josefin Meyer (Kiel Institute and LMU Munich) — Carmen M. Reinhart (Harvard, CEPR and NBER) — Christoph Trebesch (Kiel Institute and CEPR)

Speaker

Christoph Trebesch (Kiel Institute, RA "Global Macroeconomics and Global Governance" and CEPR)

Abstract

We study the implicit seniority structure of sovereign debt, using new data on missed payments (arrears) towards six types of external creditors. The data reveal a clear pecking order of sovereign debt repayment and default. As expected, at the top are multilateral official creditors such as the IMF and the World Bank, who are least likely to be defaulted upon. Surprisingly, bilateral official creditors are junior to sovereign bondholders, especially in the period after 1990. Most junior are commercial banks and trade creditors. This pecking order is confirmed after controlling for a country's debt structure, economic fundamentals, and time and country fixed effects. The seniority structure also holds when studying the outcome of sovereign debt restructurings, by comparing creditor losses (haircuts) on private and official external debt: On average, private creditors face significantly lower haircuts than official creditors. Our results pose a challenge for the theoretical literature on sovereign debt.

Authors

Matthias Schlegl (LMU Munich and University of Osaka) — Christoph Trebesch (Kiel Institute and CEPR) — Mark L.J. Wright (Fed Minneapolis and NBER)

Global Macroeconomics and Global Governance - Josefin Meyer & Christoph Trebesch

200 Years of Sovereign Haircuts and Bond Returns

Speaker

Abstract

Authors

The Seniority Structure of Sovereign Debt

Speaker

Abstract

Authors

Josefin Meyer

Prof. Dr. Christoph Trebesch

Institution

Exports and New Products in China – A Modified Matching Model to Include Firm-to-Firm Spillovers — Aoife Hanley

Linking the EU and Chinese ETS — Malte Winkler

International Finance and Macroeconomics

Kiel Institute for
the World Economy