The legacy and the tyranny of time: exit and re-entry of sovereigns to international capital markets
journal contributionposted on 07.09.2017, 15:00 by Luca Agnello, Vitor Castro, Ricardo M. Sousa
We use a novel continuous-time Weibull model (without and) with a change-point in the duration dependence parameter to investigate the duration of the exit and re-entry of sovereigns to international capital markets. Relying on annual data for a large panel of countries over the period 1970-2011, we find that, as the reputation of debtor countries as good (bad) borrowers solidifies over time, those episodes are more likely to end - i.e. the "legacy of time". Debtor countries can take advantage of the "benefit of doubt" of creditors during short exit spells. However, when exits are long and the reputation as a bad borrower emerges, no more "complacency" makes it more difficult for them to borrow again in international capital markets - i.e. the "tyranny of time". We also find that: (i) government stability and multilateral financial assistance play a crucial role; (ii) the dynamics of the duration of exit (re-entry) spells is robust to the presence of default episodes, the default length and the haircut size; and (iii) exit and re-entry have shortened over time.
Castro and Sousa acknowledge that this work was carried out within the funding with COMPETE reference nº POCI-01-0145-FEDER-006683, with the FCT/MEC's (Fundacao para a Ciencia e Tecnologia, I.P.) financial support through national funding and by the ERDF through the Operational Programme on "Competitiveness and Internationalization - COMPETE 2020" under the PT2020 Partnership Agreement.
- Business and Economics