Sovereign Risk and Simple Debt Dynamics: The Case of Brazil and Argentina

Rainer Haselmann (), Stephanie Holle, Clemens J.M. Kool () and Thomas H.W. Ziesemer ()

No 34, Research Memoranda from Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology

Abstract: In this paper we develop a simple neoclassical growth model with perfect internationalcapital mobility to analyze the international debt dynamics of developing countries ingeneral and Brazil and Argentina in particular. We show that three different regimes canbe distinguished: a stable steady state debtor regime, a stable steady state creditor regimeand an unstable regime. A switch from a stable debtor or a stable creditor position to anunstable creditor regime may be a sign of forthcoming trouble. We investigate this issueempirically for Brazil and Argentina over the period 1960-1999. Over the full sample, theevidence suggests that debt dynamics evolved according to the stable debtor case in bothcountries. Using a rolling regression technique, we find that indeed occasional switchesto the unstable regime occurred. In particular, Argentina was in the unstable regime formost of the 1990s way before the Argentine debt crisis erupted.

Keywords: economic development an growth (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2002
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