Discussion Paper Details

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Title: A Brazilian Debt-Crisis Model

Author(s): Assaf Razin and Efraim Sadka

Publication Date: September 2002

Keyword(s): costly-state verification, debt crisis and multiple self-fulfilling-expectations equilibria

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Razin, A and Sadka, E. 2002. 'A Brazilian Debt-Crisis Model'. London, Centre for Economic Policy Research.