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Fiscal Policy and Default Risk in Emerging Markets

  • Juan M. Sanchez

    (FRB Richmond)

  • Horacio Sapriza

    (Board of Governors FRS and Rutgers University)

  • Gabriel Cuadra

    (Banco de Mexico)

is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets,endogenous fiscal policy and sovereign and private sector default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in emerging economies.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 701.

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Date of creation: 2009
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Handle: RePEc:red:sed009:701
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