Defaultable debt, interest rates and the current account

Mark Aguiar and Gita Gopinath

No 2004-31, Pacific Basin Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: World capital markets have experienced large scale sovereign defaults on a number of occasions, the most recent being Argentina’s default in 2002. 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. That is, emerging markets on average borrow more in good times and at lower interest rates as compared to slumps. Our ability to match these facts within the framework of an otherwise standard business cycle model with endogenous default relies on the importance of a stochastic trend in emerging markets.

Keywords: Default (Finance); Debt; Interest rates (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-mon
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.frbsf.org/publications/economics/papers/2004/wp04-31bk.pdf (application/pdf)

Related works:
Journal Article: Defaultable debt, interest rates and the current account (2006)
Journal Article: Defaultable debt, interest rates and the current account (2004)
Working Paper: Defaultable debt, interest rates, and the current account (2004)
Working Paper: Defaultable Debt, Interest Rates and the Current Account (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedfpb:2004-31

Ordering information: This working paper can be ordered from
http://www.frbsf.org/popups/fiporder.html

Access Statistics for this paper

More papers in Pacific Basin Working Paper Series from Federal Reserve Bank of San Francisco
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().