Defaultable Debt, Interest Rates, and the Current Account

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Citation

Aguiar, Mark and Gita Gopinath (2006): “Defaultable Debt, Interest Rates, and the Current Account,” Journal of International Economics, 69(1): 64-83.

Abstract

World capital markets have experienced large scale sovereign defaults on a number of occasions. In this paper we develop a quantitative model of debt and default in a small open economy. We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated. We highlight the role of the stochastic trend in emerging markets, in an otherwise standard model with endogenous default, to match these facts.

BibTeX Cite:

@article {AguiarGopinath2006,
	title = {Defaultable Debt, Interest Rates, and the Current Account},
	journal = {Journal of International Economics},
	volume = {69},
	number = {1},
	year = {2006},
	pages = {64-83},
	abstract = {World capital markets have experienced large scale sovereign defaults on a number of occasions. In this paper we develop a quantitative model of debt and default in a small open economy. We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated. We highlight the role of the stochastic trend in emerging markets, in an otherwise standard model with endogenous default, to match these facts},
	author = {Aguiar, Mark and Gopinath, Gita},
	url={https://doi.org/10.1016/j.jinteco.2005.05.005}
	}