Article ID Journal Published Year Pages File Type
963306 Journal of International Economics 2006 20 Pages PDF
Abstract
World capital markets have experienced large scale sovereign defaults on a number of occasions. In this paper we develop a quantitative model of debt and default in a small open economy. We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated. We highlight the role of the stochastic trend in emerging markets, in an otherwise standard model with endogenous default, to match these facts.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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