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Part IV Economics of Sovereign Borrowing, 19 Why Governments Default »

Willem H. Buiter, Ebrahim Rahbari
From: Sovereign Debt Management
Edited By: Rosa M Lastra, Lee Buchheit
19.01 From an economic perspective, default is any change in the stream of current and future payments on a debt contract that makes it less valuable to the creditor than the execution of the contractually agreed payments stream.2 Default is probably as old as debt itself, because, as with virtually any intertemporal contract, the net present (discounted) value (NPV) of abiding by the terms of the contract (its continuation value) changes over the life of the contract for the parties involved and may well become negative for one or more of the parties. In the case...