EconPapers    
Economics at your fingertips  
 

Sovereign defaults, external debt and real exchange rate dynamics

Tamon Asonuma ()

MPRA Paper from University Library of Munich, Germany

Abstract: Emerging countries experience real exchange rate depreciations around defaults. In this paper, we examine this observed pattern empirically and through the lens of a dynamic stochastic general equilibrium model. The theoretical model explicitly incorporates bond issuances in local and foreign currencies, and endogenous determination of real exchange rate and default risk. Our quantitative analysis, using the case of Argentina�s default in 2001, replicates the link between real exchange rate depreciation and default probability around defaults and moments of the real exchange rate that match the data. Prior to default, interactions of real exchange rate depreciation, originated from a sequence of low tradable goods shocks with the sovereign�s large share of foreign currency debt, trigger defaults. In post-default periods, the resulting output costs and loss of market access due to default lead to further real exchange rate depreciation.

Keywords: Sovereign defaults; External debt; Real exchange rate; Currency composition of debt (search for similar items in EconPapers)
JEL-codes: E43 F32 F34 G12 (search for similar items in EconPapers)
Date: 2014-03-23
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/55133/1/MPRA_paper_55133.pdf original version (application/pdf)

Related works:
Working Paper: Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:55133

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2021-07-09
Handle: RePEc:pra:mprapa:55133