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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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Author Info

  • Márcio Gomes Pinto Garcia

    () (Department of Economics PUC-Rio)

  • Roberto Rigobon

    (MIT)

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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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 484.

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Length: 23 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:rio:texdis:484

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Keywords: Public Debt; Debt Sustainability; Country Risk; Brazil JEL Codes: F34; F37; G15;

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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. repec:rus:hseeco:123922 is not listed on IDEAS
  4. Afonso S. Bevilaqua & Márcio Gomes Pinto Garcia, 1999. "Debt management in Brazil: evaluation of the Real Plan and challenges ahead," Textos para discussão 408, Department of Economics PUC-Rio (Brazil).
  5. Márcio Gomes Pinto Garcia & Tatiana Didier, 2000. "Very high interest rates and the cousin risks: Brazil during the Real Plan," Textos para discussão 441, Department of Economics PUC-Rio (Brazil).
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