Interest Rates, Growth and External Debt: The Macroeconomic Impact of Mexico's Brady Deal
AbstractInterest rates fell sharply after Mexico's Brady deal, and private investment and growth recovered. We show, econometrically, that debt relief influenced the macroeconomy mostly though its favourable impact on uncertainty. While the impact of the variability of the future net transfer is significant, the impact of the net transfer itself is not. Specifically the favourable impact on uncertainty about future exchange rate crises is the dominant explanation of the macroeconomic response to debt relief. These results confirm the beneficial macroeconomic effects of debt relief, but reject the debt overhang hypothesis as a dominant factor.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 904.
Date of creation: Feb 1994
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- Claessens, Stijn & Oks, Daniel & van Wijnbergen, Sweder, 1993. "Interest rates, growth, and external debt : the macroeconomic impact of Mexico's Brady deal," Policy Research Working Paper Series 1147, The World Bank.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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