ICEF/LFE Research Seminar by Dimitrios Tsomocos (University of Oxford)

On February 11 at 12 pm ICEF and LFE held the Research Seminar in Finance.
Speaker: Dimitrios Tsomocos (University of Oxford)
Theme: "Debt, Recovery Rates and the Greek Dilemma"

Abstract :We examine the dilemma facing holders of Greek debt on whether to commence new renegotiations or accept the possibility of future default on the current deal. The debate has hitherto been focused on the effect of renegotiations on Greek to fulfill its obligations but has ignored the implications to creditor nations. Here we examine a dynamic 2 country model calibrated to the Greek and German (as its creditor) economy and shows that restructuring Greek debt may be beneficial for both creditors and debtors. We find the forgiving debt in arrears lowers the volatility of German consumption and dampers fluctuations following shocks while demanding higher recovery rates has the opposite effect. Finally our model provides an endogenous debt-to-assets ratio and an endogenous structure of liabilities.

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