Sovereign Risk and Real Business Cycles in a Small Open Economy
AbstractThis paper investigates the effect of sovereign risk on the stochastic rational expectations equilibrium of a real business cycle small open economy.The credit market is imperfect because the sovereign cannot commit to repay its outstanding debt and chooses to default when it is optimal to do so. The possibility of default induces an endogenous sovereign risk premium on foreign debt and an endogenous rationing limit set by foreign creditors. The model is parameterized and solved numerically to explore the determinants of the saving and investment decisions in an economy that can optimally choose to default on its foreign debt and the ability to account for the Sudden Stop of Capital inflows.
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Bibliographic InfoPaper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 226.
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Other versions of this item:
- Franz Hamann, 2002. "Sovereign Risk and Real Business Cycles in a Small Open Economy," International Finance 0212001, EconWPA.
- Franz Hamann, 2002. "Sovereign Risk And Real Business Cycles In A Small Open Economic," BORRADORES DE ECONOMIA 003521, BANCO DE LA REPÚBLICA.
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-02 (All new papers)
- NEP-DGE-2003-04-02 (Dynamic General Equilibrium)
- NEP-MAC-2003-04-02 (Macroeconomics)
- NEP-RMG-2003-04-02 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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