Speculative Behaviour, Debt Default and Contagion: An Explanation of the Latin American Crisis 2001-2002
AbstractThis paper provides a model incorporating strategic speculative behaviour into a framework of debt default and contagion. A basic model of contagion shows how economies which appear fundamentally sound, can fail to meet foreign obligations when there are inter-linkages with a defaulting country. Introducing speculators into the framework increases the incidence of debt default and contagion. However, when these speculators view the economy with a degree of uncertainty, the likelihood of default and contagion is even greater. SpeculatorsÂ’ perceptions over the state of the economy are therefore paramount when estimating the impact of a crisis on a region.
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Bibliographic InfoPaper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2003-08.
Length: 34 pages
Date of creation: Mar 2003
Date of revision:
Currency Crises; Contagion; Common Knowledge.;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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