A Brazilian Debt-Crisis Model

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Assaf Razin; Efraim Sadka;
  • Subject: costly-state verification; debt crisis; multiple self-fulfilling-expectations equilibria
    • jel: jel:F3 | jel:F1

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... View more
  • References (3)

    [1] Bernanke, Benjamin and Marc Gertler (1989), "Agency Costs, Net Worth and Business Fluctuations," American Economic Review, 79, 14-31.

    [2] Razin, Assaf and Efraim Sadka, (2001), "Country Risk and Capital Flow Reversals," Economics Letters, 72(1), July 73-77.

    [3] Townsend, Robert M. (1979), "Optimal Contracts and Competitive Markets with Costly State Verification," Journal of Economic Theory, 21, 265-93.

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