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Debt, recovery rates and the Greek dilemma

Goodhart, C. A. E., Peiris, M. U. and Tsomocos, D. P. (2016) Debt, recovery rates and the Greek dilemma. Saïd Business School WP 2016-15. Social Science Electronic, Rochester, NY, USA.

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Abstract

Most discussions of the Greek debt overhang have focussed on the implications for Greece. We show that when additional funds released to the debtor (Greece), via debt restructuring, are used efficiently in pursuit of a practicable business plan, then both debtor and creditor can benefit. We examine a dynamic two country model calibrated to Greek and German economies and support two-steady states, one with endogenous default and one without, depending on creditors expectations. In the default steady state, debt forgiveness lowers the volatility of both German and Greek consumption whereas demanding higher recovery rates has the opposite effect.

Item Type: Monograph (Working Paper)
Official URL: http://papers.ssrn.com/sol3/
Additional Information: © 2016 Social Science Electronic Publishing, Inc
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
Sets: Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 31 May 2016 15:32
Last Modified: 20 Feb 2019 03:57
URI: http://eprints.lse.ac.uk/id/eprint/66727

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