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Debt Relief: What Do the Markets Think?

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  • Serkan Arslanalp
  • Peter Blair Henry

Abstract

The stock market appreciates by an average of 60 percent in real dollar terms when countries announce debt relief agreements under the Brady Plan. In contrast, there is no significant increase in market value for a control group of countries that do not sign agreements. The results persist after controlling for IMF agreements, trade liberalizations, capital account liberalizations, and privatization programs. The stock market revaluations forecast higher future net resource transfers and GDP growth. While markets respond favorably to debt relief in the Brady countries, there is no evidence to suggest that current debt relief efforts for the Highly-Indebted Poor Countries (HIPCs) will achieve similar results.

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  • Serkan Arslanalp & Peter Blair Henry, 2002. "Debt Relief: What Do the Markets Think?," NBER Working Papers 9369, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9369
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    Cited by:

    1. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    2. Arslanalp, Serkan & Henry, Peter B., 2003. "The World's Poorest Countries: Debt Relief or Aid?," Research Papers 1809, Stanford University, Graduate School of Business.
    3. Andrei Shleifer, 2003. "Will the Sovereign Debt Market Survive?," American Economic Review, American Economic Association, vol. 93(2), pages 85-90, May.
    4. Mr. Tito Cordella & Mr. Luca A Ricci & Marta Ruiz-Arranz, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt-Growth Link," IMF Working Papers 2005/223, International Monetary Fund.

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