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Mechanisms of default risk transmission and economic policy coordination

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  • Correia, Fernando Motta
  • Junior, Karlo Marques

Abstract

This paper analyses the coordination between monetary and fiscal policy in an emerging economy with an inflation-targeting monetary regime, in a context in which default risk shocks can lead to macroeconomic imbalances. It develops a macrodynamic model in order to capture the mechanisms of default risk transmission and its effects on the definition of reaction functions for the monetary and fiscal authorities. The main findings of the model point to the existence of new mechanisms of default risk transmission associated with price and fiscal stability.

Suggested Citation

  • Correia, Fernando Motta & Junior, Karlo Marques, 2016. "Mechanisms of default risk transmission and economic policy coordination," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    • Handle: RePEc:ecr:col070:41254
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    References listed on IDEAS

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    1. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
    2. Olivier Blanchard & Giovanni Dell’Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    3. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
    4. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
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