Grace Periods in Sovereign Debt |
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Authors: | Mehmet Bac |
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Institution: | Bilkent University, Ankara, Turkey |
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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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