Defaultable Debt, Interest Rates and the Current Account / Mark Aguiar, Gita Gopinath.

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Aguiar, Mark

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10731.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

F4 - Macroeconomic Aspects of International Trade and Finance

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Abstract: World capital markets have experienced large scale sovereign defaults on a number of occasions, the most recent being Argentina's default in 2002. In this paper we develop a quantitative model of debt and default in a small open economy. We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated. That is, emerging markets on average borrow more in good times and at lower interest rates as compared to slumps. Our ability to match these facts within the framework of an otherwise standard business cycle model with endogenous default relies on the importance of a stochastic trend in emerging markets.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10731 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w10729 Empire, Public Goods, and the Roosevelt Corollary /	nber w1073 The Taxation of Income from Capital: A Comparative Study of the U.S., U.K., Sweden and West Germany--Comparisons of Effective Tax Rates-- /	nber w10730 Welfare vs. Market Access: The Implications of Tariff Structure for Tariff Reform /	nber w10731 Defaultable Debt, Interest Rates and the Current Account /	nber w10732 Transition Dynamics in Vintage Capital Models: Explaining the Postwar Catch-Up of Germany and Japan /	nber w10733 Neoclassical Growth and the Adoption of Technologies /	nber w10734 Emerging Market Business Cycles: The Cycle is the Trend /	Next

September 2004.

World capital markets have experienced large scale sovereign defaults on a number of occasions, the most recent being Argentina's default in 2002. In this paper we develop a quantitative model of debt and default in a small open economy. We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated. That is, emerging markets on average borrow more in good times and at lower interest rates as compared to slumps. Our ability to match these facts within the framework of an otherwise standard business cycle model with endogenous default relies on the importance of a stochastic trend in emerging markets.