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“Debt, Recovery Rates and the Greek Dilemma ”
Termin
Freitag, 22. April 2016, 11 Uhr
Ort
Oesterreichische Nationalbank
Abstract
Most discussion of the Greek debt overhang has focused on the implications for Greece, implicitly assuming
a zero-sum game whereby any benefit to Greece from debt forgiveness implies an equal and opposite cost to the (German) creditor. If, however, the additional funds released to the debtor (Greece) are used efficiently in pursuit of a practicable business plan,
then both debtor and creditor can benefit, in terms of higher net present value, from debt forgiveness, as we demonstrate in this paper. Here we examine a dynamic 2 country model calibrated to the Greek and German (as its creditor) economy and show that restructuring
Greek debt may be beneficial for both debtors and creditors. We find that forgiving debt in arrears lowers the volatility of German consumption and dampens fluctuations following shocks, whereas demanding higher recovery rates has the opposite effect. Finally
our model provides an endogenous debt-to-assets ratio and an endogenous structure of liabilities in our debtor country.
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