National exchange rate policies and international debt crises

Bryan Andrew Kenyon Johnson ()

Brazilian Journal of Political Economy, 2007, vol. 27, issue 1, 60-81

Abstract: This paper examines how exchange rate policies and IMF Stand-By Arrangements affect debt crises using econometrics and a comparison between Argentina and Brazil. It refines an existing diagram outlining crisis development to propose crisis prevention strategies. Flexible exchange rate policies reduce a country’s probability of default by over 4%, but Stand-By Arrangements increase it by an inconsequential percentage. Unlike Argentina, Brazil avoided a default via a freely-floating exchange rate system, fiscal deficit reduction, and a cooperative and coordinated relationship with the IMF. The results provide policymakers from developing countries with lessons to manage their countries’ default risks more effectively. JEL Classification: B23, C12, C23, E44, E61, F34.

Keywords: exchange rate policies; IMF Stand-By Arrangements; probability of default (search for similar items in EconPapers)
Date: 2007
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