The Costs of Sovereign Default: Evidence from Argentina†

The Costs of Sovereign Default: Evidence from Argentina† AbstractWe estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of NML Capital, Ltd. v. Republic of Argentina. We find that a 10 percent increase in the probability of default causes a 6 percent decline in the value of Argentine equities and a 1 percent depreciation of a measure of the exchange rate. We examine the channels through which a sovereign default may affect the economy. (JEL D22, F31, F34, G32, O14, O16, O19) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

The Costs of Sovereign Default: Evidence from Argentina†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20151667
Publisher site
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Abstract

AbstractWe estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of NML Capital, Ltd. v. Republic of Argentina. We find that a 10 percent increase in the probability of default causes a 6 percent decline in the value of Argentine equities and a 1 percent depreciation of a measure of the exchange rate. We examine the channels through which a sovereign default may affect the economy. (JEL D22, F31, F34, G32, O14, O16, O19)

Journal

American Economic ReviewAmerican Economic Association

Published: Oct 1, 2017

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