Interest Rates, Growth and External Debt: The Macroeconomic Impact of Mexico's Brady Deal

Stijn Claessens (), Daniel Oks () and Sweder van Wijnbergen

No 904, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Interest rates fell sharply after Mexico's Brady deal, and private investment and growth recovered. We show, econometrically, that debt relief influenced the macroeconomy mostly though its favourable impact on uncertainty. While the impact of the variability of the future net transfer is significant, the impact of the net transfer itself is not. Specifically the favourable impact on uncertainty about future exchange rate crises is the dominant explanation of the macroeconomic response to debt relief. These results confirm the beneficial macroeconomic effects of debt relief, but reject the debt overhang hypothesis as a dominant factor.

Keywords: Debt Relief; Debt Uncertainty; Investment and Uncertainty; Uncertainty and Economic Growth (search for similar items in EconPapers)
JEL-codes: F34 (search for similar items in EconPapers)
Date: 1994-02
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Interest rates, growth, and external debt: the macroeconomic impact of Mexico's Brady deal (1993)
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