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Monetary Policy Reaction to Foreign Debt Accumulation in Developing Countries


  • Fry, Maxwell J


Recent research indicates that current account imbalances in the three largest industrial countries are self-correcting, but the situation appears to be different in a sample of 26 developing countries examined here. Part of the reason may lie in different monetary policy responses to foreign debt buildup in these developing countries. While cumulated current account deficits generate stabilizing forces, possibly through financial wealth effects, large amounts of government and government-guaranteed debt produce destabilizing effects by stimulating capital flight. Monetary policy reactions are stabilizing in the case of cumulated current account deficits, but destabilizing in the case of a buildup of government and government-guaranteed foreign debt. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Fry, Maxwell J, 1993. "Monetary Policy Reaction to Foreign Debt Accumulation in Developing Countries," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(0), pages 60-75, Suppl..
  • Handle: RePEc:bla:manch2:v:61:y:1993:i:0:p:60-75

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