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Sovereign Risk and Simple Debt Dynamics: The Case of Brazil and Argentina

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Author Info

  • Haselmann,Rainer
  • Holle,Stephanie
  • Kool,Clemens
  • Ziesemer,Thomas

    (MERIT)

Abstract

In this paper we develop a simple neoclassical growth model with perfect internationalcapital mobility to analyze the international debt dynamics of developing countries ingeneral and Brazil and Argentina in particular. We show that three different regimes canbe distinguished: a stable steady state debtor regime, a stable steady state creditor regimeand an unstable regime. A switch from a stable debtor or a stable creditor position to anunstable creditor regime may be a sign of forthcoming trouble. We investigate this issueempirically for Brazil and Argentina over the period 1960-1999. Over the full sample, theevidence suggests that debt dynamics evolved according to the stable debtor case in bothcountries. Using a rolling regression technique, we find that indeed occasional switchesto the unstable regime occurred. In particular, Argentina was in the unstable regime formost of the 1990s way before the Argentine debt crisis erupted.

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Bibliographic Info

Paper provided by Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology in its series Research Memoranda with number 034.

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Date of creation: 2002
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Handle: RePEc:dgr:umamer:2002034

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

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Keywords: economic development an growth ;

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  1. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Hori, Hajime & Stein, Jerome L, 1977. "International Growth with Free Trade in Equities and Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(1), pages 83-100, February.
  3. Onitsuka, Yusuke, 1974. "International Capital Movements and the Patterns of Economic Growth," American Economic Review, American Economic Association, vol. 64(1), pages 24-36, March.
  4. Neher, Philip A, 1970. "International Capital Movements along Balanced Growth Paths," The Economic Record, The Economic Society of Australia, vol. 46(115), pages 393-401, September.
  5. Vogelsang, T.I. & Perron, P., 1991. "Nonstationary and Level Shifts With An Application To Purchasing Power Parity," Papers 359, Princeton, Department of Economics - Econometric Research Program.
  6. Fischer, Stanley & Frenkel, Jacob A, 1974. "Interest Rate Equalization and Patterns of Production, Trade and Consumption in a Two-country Growth Model," The Economic Record, The Economic Society of Australia, vol. 50(132), pages 555-80, December.
  7. Oetzel, Jennifer M. & Bettis, Richard A. & Zenner, Marc, 2001. "Country risk measures: how risky are they?," Journal of World Business, Elsevier, vol. 36(2), pages 128-145, July.
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Cited by:
  1. Jasper Lukkezen & Hugo Rojas-Romagosa, 2012. "When is debt sustainable?," CPB Discussion Paper 212, CPB Netherlands Bureau for Economic Policy Analysis.

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