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.

Source Title

Review of International Economics

Publisher

Wiley-Blackwell Publishing Ltd.

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Published Version (Please cite this version)

Language

English