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A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an application to Brazilian data

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  • Roberto Rigobon
  • Marcio Garcia

Abstract

In this paper we study the question of debt sustainability from a risk management perspective. The debt accumulation equation for any country involves variables that are stochastic and closely intertwined. When these aspects are taken into consideration the notion of debt sustainability is expanded to studying the stochastic properties of the debt dynamics. We illustrate the methodology by studying the Brazilian case. We find that even though the debt could be sustainable in the absence of risk, there are paths in which it is clearly unsustainable. Furthermore, we show that properties of the debt dynamics are closely related to the spreads on sovereign dollar denominated debt

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File URL: http://repec.org/esLATM04/up.3693.1079642351.pdf
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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 24.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:24

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Keywords: Public Debt; Debt Sustainability; Country Risk; Brazil;

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References

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  1. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  2. Benigno, Pierpaolo & Giavazzi, Francesco & Missale, Alessandro, 2001. "How is the Debt Managed? Learning from Fiscal Stabilizations," CEPR Discussion Papers 2655, C.E.P.R. Discussion Papers.
  3. Bevilaqua, Alfonso S. & Garcia, Marcio G. P., 2000. "Debt management in Brazil : evaluation of the Real Plan and challenges ahead," Policy Research Working Paper Series 2402, The World Bank.
  4. repec:rus:hseeco:123922 is not listed on IDEAS
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Cited by:
  1. Hans J. Blommestein & Javier Santiso, 2007. "New Strategies for Emerging Domestic Sovereign Bond Markets," OECD Development Centre Working Papers 260, OECD Publishing.
  2. Gabriel Di Bella, 2008. "A Stochastic Framework for Public Debt Sustainability Analysis," IMF Working Papers 08/58, International Monetary Fund.
  3. Carrera, Claudia Martínez & Vergara, Rodrigo, 2012. "Fiscal Sustainability: The Impact of Real Exchange Rate Shocks on Debt Valuation, Interest Rates and GDP Growth," World Development, Elsevier, vol. 40(9), pages 1762-1783.
  4. Pedro Maia & Márcio Gomes Pinto Garcia, 2011. "A gerência recente do endividamento público brasileiro," Textos para discussão 595, Department of Economics PUC-Rio (Brazil).
  5. Hevia, Constantino, 2012. "Using pooled information and bootstrap methods to assess debt sustainability in low income countries," Policy Research Working Paper Series 5978, The World Bank.
  6. Graciela L. Kaminsky & Pablo Vega-García, 2014. "Varieties of Sovereign Crises: Latin America 1820-1931," NBER Working Papers 20042, National Bureau of Economic Research, Inc.
  7. Das, Udaibir S. & Oliva, Maria A. & Tsuda, Takahiro, 2012. "Sovereign Risk: A Macro-Financial Perspective," ADBI Working Papers 383, Asian Development Bank Institute.

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