Heterogeneous borrowers in quantitative models of sovereign default
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In this article, the authors extend the model used in recent quantitative studies of sovereign default, allowing policymakers of different types to stochastically alternate in power, and show that a default episode may be triggered by a change in the type of policymaker in office, and that such a default is likely to occur only if there is enough political stability and if policymakers encounter poor economic conditions.Abstract:
We extend the model used in recent quantitative studies of sovereign default, allowing policymakers of different types to stochastically alternate in power. We show that a default episode may be triggered by a change in the type of policymaker in office, and that such a default is likely to occur only if there is enough political stability and if policymakers encounter poor economic conditions. Under high political stability, political turnover enables the model to generate a weaker correlation between economic conditions and default decisions, a higher and more volatile spread, and lower borrowing levels after a default episode.read more
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Default Risk and Income Fluctuations in Emerging Economies
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References
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The Twin Crises: The Causes of Banking and Balance-Of-Payments Problems
TL;DR: The authors analyzes the links between banking and currency crises and finds that problems in the banking sector typically precede a currency crisis, activating a vicious spiral; financial liberalization often precedes banking crises.
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The twin crises: the causes of banking and balance-of-payments problems
TL;DR: This paper examined the potential links between banking and balance-of-payments crises and found that financial liberalization usually predates banking crises, indeed, it helps predict them, rather than a causal relationship from banking to balance of payments crises.
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Closing Small Open Economy Models
TL;DR: In this paper, a quantitative comparison of five alternative models for the small open economy model with incomplete asset markets is presented, and the main finding of the comparison is that all models deliver virtually identical dynamics at business cycle frequencies, as measured by unconditional second moments and impulse response functions.
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Business Cycles in Emerging Economies:The Role of Interest Rates
TL;DR: In this paper, the empirical relation between the interest rates that emerging economies face in international capital markets and their business cycles was investigated, showing that interest rate shocks alone can explain 50% of output fluctuations and can generate business cycle patterns consistent with the regularities described above and with the major booms and recessions in Argentina in the last two decades.
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