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.
£6.00
Citation
Razin, A and E Sadka (2002), ‘DP3541 A Brazilian Debt-Crisis Model‘, CEPR Discussion Paper No. 3541. CEPR Press, Paris & London. https://cepr.org/publications/dp3541
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