Missing Link; Volatility and the Debt Intolerance Paradox
Luis Catão () and
No 04/51, IMF Working Papers from International Monetary Fund
A striking feature of sovereign lending is that many countries with moderate debt-to-income ratios systematically face higher spreads and more stringent borrowing constraints than others with far higher debt ratios. Earlier research has rationalized the phenomenon in terms of sovereign reputation and countries' distinct credit histories. This paper provides theoretical and empirical evidence to show that differences in underlying macroeconomic volatility are key. While volatility increases the need for international borrowing to help smooth domestic consumption, the ability to borrow is constrained by the higher default risk that volatility engenders.
Keywords: Emerging markets; Sovereign debt; macroeconomic volatility, probability, statistics, debt intolerance, probabilities, International Lending and Debt Problems, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (27) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:04/51
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().