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Speculative behaviour, debt default and contagion: A stylised framework of the Latin American Crisis 2001-2002

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Abstract

This paper provides a model incorporating strategic speculative behaviour into a framework of debt default and contagion. A basic model of contagion shows how economies which appear fundamentally sound, can fail to meet foreign obligations when there are inter-linkages with a defaulting country. Introducing speculators into the framework increases the incidence of debt default and contagion. However, when these speculators view the economy with a degree of uncertainty, the likelihood of default and contagion is even greater. Speculators' perceptions over the state of the economy are therefore paramount when estimating the impact of a crisis on a region.

Suggested Citation

  • Louise Allsopp, 2003. "Speculative behaviour, debt default and contagion: A stylised framework of the Latin American Crisis 2001-2002," Reserve Bank of New Zealand Discussion Paper Series DP2003/10, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:2003/10
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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