Lost and found: market access and public debt dynamics
Carlo Cottarelli and
Oxford Economic Papers, 2019, vol. 71, issue 2, 445-471
The empirical literature on sovereign debt crises identifies the level of public debt (measured as a share of GDP) as a key variable to predict debt defaults and to determine sovereign market access. This evidence has led to the widespread use of (country-specific) debt thresholds to assess debt sustainability. We argue that the level of the debt-to-GDP ratio, whose use is justified on a theoretical and empirical ground, should not be the only fiscal metric to assess the complex relationship between public debt and debt defaults/market access. In particular, we show that, in a large panel of emerging markets, the dynamics of the debt ratio plays a critical role for market access. In particular, given a certain level of debt, a steadily declining debt ratio is associated with a lower probability of debt distress/market loss and with a higher likelihood of market re-access once access has been lost.
JEL-codes: F34 G15 H62 H63 (search for similar items in EconPapers)
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Working Paper: Lost and Found: Market Access and Public Debt Dynamics (2016)
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