Emerging Countries' External Debt. How Should One Neutralize Hard-Currency Volatility?

Pierre Laurent, Nicolas Meunier, Egidio Miotti, Carlos Quenan and Véronique Seltz

Revue économique, 2003, vol. 54, issue 5, 1033-1055

Abstract: Instability ? and, in particular, the volatility of hard-currency exchange rates ? is a strong characteristic of the financial global environment. Volatility has implications on the emerging economies? competitiveness and external-debt burden. This paper develops a simple model centered on debt dynamics. We show that an emerging economy can stabilize the domestic value of its external debt using three parameters: the currency composition of its debt, its exchange-rate regime, and the geographic structure of its trade.

Date: 2003
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