A Brazilian Debt-Crisis Model

Assaf Razin and Efraim Sadka

No 3541, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a stylised model of multiple equilibria, with country risk spreads at the focus of the analysis. Fears that the country default on its debt triggers a reversal in the direction of inflows of international financial capital raise interest-rate spreads and thus the cost of servicing the public debt. The analytical framework is standard: creditors observe the output of borrowing only at a cost.

Keywords: Costly-state verification; Multiple self-fulfilling-expectations equilibria; Debt crisis (search for similar items in EconPapers)
JEL-codes: F3 (search for similar items in EconPapers)
Date: 2002-09
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Working Paper: A Brazilian Debt-Crisis Model (2002)
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