A Brazilian-type debt crisis: Simple analytics

Research output: Contribution to journalArticlepeer-review

Abstract

This paper develops a model that captures important features of debt crises of the Brazilian type. Its applicability to Brazil lies in the facts that (1) macroeconomic fundamentals were relatively sound in the wake of the crisis (e.g., a nonnegligible primary surplus, a relatively low debt-GDP ratio, and low inflation); and (2) the trigger for the crisis-forthcoming elections with an expected regime change-appears to be extraneous. We rationalize the sort of circularity involved in a country's credit rating. In particular, we show how country credit ratings could bring about unstable macroeconomic behavior, and explore the implications of such behavior for fiscal policy.

Original languageEnglish
Pages (from-to)148-153
Number of pages6
JournalIMF Staff Papers
Volume51
Issue number1
StatePublished - 2004

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