Self-Fulfilling Debt Crises in Theory and Practice
This paper analyzes econometrically how a country`s post-crisis debt ratio could be forecast, in the aftermath of a debt crisis, from the previous debt-to-GDP ratio. A critical parameter is simply the debt-to-PPP-GDP ratio, where PPP-GDP is, in current international dollars, the Summers-Heston value. In this formulation, this paper shows that the Latin American paradox disappears. This then leads to a simple conclusion: debt crises are more frequent in Latin American countries because they have more damaging consequences on the market value of GDP. This itself appears to be closely related to the fact that pre-crisis Latin American exchange rates are also overvalued (for a similar emphasis, see Calvo et al. , 2003). As a simple consequence of this model, the paper suggests computing the debt-to-PPP-GDP ratio as a new standard for analyzing debt sustainability.
Year of publication: |
2006-12
|
---|---|
Authors: | Cohen, Daniel ; Villemot, Sébastien |
Institutions: | Inter-American Development Bank |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Self-Fulfilling Debt Crises in Theory and Practice
Cohen, Daniel, (2006)
-
Self-Fulfilling Debt Crises in Theory and Practice
Cohen, Daniel, (2006)
-
Self-fulfilling and self-enforcing debt crises
Cohen, Daniel, (2008)
- More ...