Banking on Seniority: The <scp>IMF</scp> and the Sovereign's Creditors

Erce, Aitor

doi:10.1111/gove.12105

Cited by 5 publications

(2 citation statements)

References 39 publications

(46 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…22 The third element of our view is that the presence of secondary markets provides a link between the decisions to default on domestic and foreign creditors. 23 As argued above, these decisions depend on di¤erent factors and there is no 'a priori' reason to expect equal treatment. And yet, secondary markets make it di¢ cult for governments to discriminate between domestic and foreign creditors.…”

Section: Secondary Markets and Discriminationmentioning

confidence: 99%

See 1 more Smart Citation

Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out

Broner

Erce²,

Martín³

et al. 2013

IMF Working Papers

View full text Add to dashboard Cite

In 2007, countries in the Euro periphery were enjoying stable growth, low deficits, and low spreads. Then the financial crisis erupted and pushed them into deep recessions, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and, surprisingly, so did the share of the debt held by domestic creditors. Credit was reallocated from the private to the public sectors, reducing investment and deepening the recessions even further. To account for these facts, we propose a simple model of sovereign risk in which debt can be traded in secondary markets. The model has two key ingredients: creditor discrimination and crowding-out effects. Creditor discrimination arises because, in turbulent times, sovereign debt offers a higher expected return to domestic creditors than to foreign ones. This provides incentives for domestic purchases of debt. Crowding-out effects arise because private borrowing is limited by financial frictions. This implies that domestic debt purchases displace productive investment. The model shows that these purchases reduce growth and welfare, and may lead to self-fulfilling crises. It also shows how crowdingout effects can be transmitted to other countries in the Eurozone, and how they may be addressed by policies at the European level.

show abstract

Section: Secondary Markets and Discriminationmentioning

confidence: 99%

“…Equations ( 22)- (23) show the law of motion of the capital stock in the presence of an economic union. A comparison of Equations ( 22)-( 23) and ( 9)- (10) reveals that the economic union a¤ects the law of motion through U;t+1 .…”

Section: The Model With An Economic Unionmentioning

confidence: 99%

Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out

Broner

Erce²,

Martín³

et al. 2013

IMF Working Papers

View full text Add to dashboard Cite

show abstract

Governments’ payment discipline: The macroeconomic impact of public payment delays and arrears

Checherita‐Westphal

Klemm

Viefers

2016

Journal of Macroeconomics

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper considers the impact of changes in governments' payment discipline on the private sector. We argue that increased delays in public payments can affect private sector liquidity and profits and hence ultimately economic growth. We test this prediction empirically for European Union countries using two complementary approaches. First, we use annual panel data, including a newly constructed proxy for government arrears. Using panel data techniques, including methods that allow for endogeneity, we find that payment delays and to some extent estimated arrears lead to a higher likelihood of bankruptcy, lower profits, and lower economic growth. While this approach allows a broad set of variables to be included, it restricts the number of time periods. We therefore complement it with a Bayesian VAR approach on quarterly data for selected countries faced with significant payment delays. With this second approach, we also find that the likelihood of bankruptcies rises when the governments increase the average payment period. JEL Classification Numbers: E6, H6, H8Keywords: Public Payment Delays, Government Arrears, Accounts Payable, Government Spending. ECB Working Paper 1771, March 2015 1 Non-Technical SummaryThe issue of government arrears has gained prominence during the European sovereign debt crisis. Particularly in EU/IMF programme countries -both in and outside the euro area -but also in other fiscally vulnerable economies, such as Italy and Spain, the identified amounts were considerable and measures to reduce the stock of arrears featured prominently in government strategies and as programme targets.To the best of our knowledge, this is the first paper to systematically address and econometrically estimate the economic impact of public spending delays and arrears. Our key contributions are twofold. First, we put forward a statistical measure that can serve as a proxy for arrears. Second, we use this and other measures of payment delays to gauge the short-term effect on some key economic variables.Our empirical results from annual panel data across the EU-27 countries suggest that payment delays may reduce profits, increase the likelihood of bankruptcies and, ultimately, slow economic growth. While the exact size of such effects is hard to estimate from the available data, results are significant in most specifications. On average for the European Union sample, the total amount of outstanding payment...

show abstract

The IMF, the eurozone and global financial crises, and the politics of economic ideas

Clift

2018

Comp Eur Polit

View full text Add to dashboard Cite

Banking on Seniority: The IMF and the Sovereign's Creditors

Cited by 5 publications

References 39 publications

Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out

Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out

Governments’ payment discipline: The macroeconomic impact of public payment delays and arrears

The IMF, the eurozone and global financial crises, and the politics of economic ideas

Contact Info

Product

Resources

About