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Speculative Behaviour, Debt Default and Contagion: An Explanation of the Latin American Crisis 2001-2002

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  • Louise Allsopp

    ()
    (School of Economics, University of Adelaide, Australia)

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    Abstract

    This 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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    File URL: http://www.adelaide.edu.au/cies/papers/0308.pdf
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    Bibliographic Info

    Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2003-08.

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    Length: 34 pages
    Date of creation: Mar 2003
    Date of revision:
    Handle: RePEc:adl:cieswp:2003-08

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    Keywords: Currency Crises; Contagion; Common Knowledge.;

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