A Brazilian Debt-Crisis Model
We develop a stylised model of multiple equilibria, with country risk spreads at the focus of the analysis. Fears that the country default on its debt triggers a reversal in the direction of inflows of international financial capital raise interest-rate spreads and thus the cost of servicing the public debt. The analytical framework is standard: creditors observe the output of borrowing only at a cost.
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- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Assaf Razin & Efraim Sadka, 2001.
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- Robert M. Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
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