Interest Rates, Growth and External Debt: The Macroeconomic Impact of Mexico's Brady Deal

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Interest Rates, Growth and External Debt: The Macroeconomic Impact of Mexico's Brady Deal

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Claessens, Stijn
Oks, Danel
van Wijnbergen, Sweder

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Abstract

Interest 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 904.

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Date of creation: Feb 1994
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Handle: RePEc:cpr:ceprdp:904

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Paper
- 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. [Downloadable!]

Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems

References listed on IDEAS
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.:

Francesco Giavazzi & Marco Pagano, 1989. "Confidence Crises and Public Debt Management," Working Papers 73, Dipartimento Scienze Economiche, Università di Bologna.
Other versions:
- Giavazzi, Francesco & Pagano, Marco, 1989. "Confidence Crises and Public Debt Management," CEPR Discussion Papers 318, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Francesco Giavazzi & Marco Pagano, 1989. "Confidence Crises and Public Debt Management," NBER Working Papers 2926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
J. Bradford De Long & Barry Eichengreen, 1991. "The Marshall Plan: History's Most Successful Structural Adjustment Program," NBER Working Papers 3899, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- J. Bradford De Long and Barry Eichengreen., 1991. "The Marshall Plan: History's Most Successful Structural Adjustment Program," Economics Working Papers 91-184, University of California at Berkeley. [Downloadable!]
- DeLong, J Bradford & Eichengreen, Barry, 1992. "The Marshall Plan: History's Most Successful Structural Adjustment Program," CEPR Discussion Papers 634, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- J. Bradford De Long & Barry Eichengreen, 1993. "The Marshall Plan: History's Most Successful Structural Adjustment Programme," J. Bradford De Long's Working Papers _109, University of California at Berkeley, Economics Department. [Downloadable!]

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Cited by:
(explanations, 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.)

Barbone, Luca & Forni, Lorenzo, 1997. "Are markets learning? : behavior in the secondary market for Brady bonds," Policy Research Working Paper Series 1734, The World Bank. [Downloadable!]
Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
- Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
- Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier. [Downloadable!] (restricted)

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