A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data

Marcio Garcia and Roberto Rigobon

No 10336, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we study the question of debt sustainability from a risk management perspective. The debt accumulation equation for any country involves variables that are stochastic and closely intertwined. When these aspects are taken into consideration the notion of debt sustainability is expanded to studying the stochastic properties of the debt dynamics. We illustrate the methodology by studying the Brazilian case. We find that even though the debt could be sustainable in the absence of risk, there are paths in which it is clearly unsustainable. Furthermore, we show that properties of the debt dynamics are closely related to the spreads on sovereign dollar denominated debt.

JEL-codes: F3 (search for similar items in EconPapers)
Date: 2004-03
New Economics Papers: this item is included in nep-fin, nep-lam, nep-mac and nep-rmg
Note: IFM
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Citations: View citations in EconPapers (58)

Published as Giavazzi, Francesco, Ilan Goldfajn, and Santiago Herrera (eds.) Inflation Targeting, Debt, and the Brazilian Experience: 1999 to 2003. Cambridge ,MA: MIT Press, 2005.

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Working Paper: A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an Application to Brazilian Data (2004)
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