Using a calibrated model of endogenous sovereign default, we explore how GDP-linked bonds can raise the maximum sustainable debt level of a government, and substantially reduce the incidence of default. The model explores both the costs (in particular the GDP risk premium) and the benefits of...

This paper provides a tractable framework to assess how the structure of debt instruments-specifically by currency denomination and indexation to GDP-can raise the debt limit of a sovereign. By calibrating the model to different country fundamentals, it is clear that there is no...

The international community has a role to play in addressing this gap. In that regard, this paper is intended to stimulate debate on the problems in the current practices for sovereign debt restructuring and puts forward some proposals to improve the functioning of sovereign debt markets. The...