Grace periods in sovereign debt
Date
1999
Authors
Bac, M.
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Abstract
This paper presents a theoretical analysis of grace periods in the context of an overhang of external debt creating a tax on domestic investment. The grace period arises as a Nash equilibrium strategy of the creditor in a dynamic, noncooperative game. Its length is shown to depend on the planning horizon of the parties, the discount factor and the growth prospect of the debtor country.
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Review of International Economics
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Wiley-Blackwell Publishing Ltd.
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English