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Sovereign Risk and Simple Debt Dynamics: The Case of Brazil and Argentina

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  • Haselmann, Rainer
  • Holle, Stephanie
  • Kool, Clemens
  • Ziesemer, Thomas

    (MERIT)

Abstract

In this paper we develop a simple neoclassical growth model with perfect internationalcapital mobility to analyze the international debt dynamics of developing countries ingeneral and Brazil and Argentina in particular. We show that three different regimes canbe distinguished: a stable steady state debtor regime, a stable steady state creditor regimeand an unstable regime. A switch from a stable debtor or a stable creditor position to anunstable creditor regime may be a sign of forthcoming trouble. We investigate this issueempirically for Brazil and Argentina over the period 1960-1999. Over the full sample, theevidence suggests that debt dynamics evolved according to the stable debtor case in bothcountries. Using a rolling regression technique, we find that indeed occasional switchesto the unstable regime occurred. In particular, Argentina was in the unstable regime formost of the 1990s way before the Argentine debt crisis erupted.

Suggested Citation

  • Haselmann, Rainer & Holle, Stephanie & Kool, Clemens & Ziesemer, Thomas, 2002. "Sovereign Risk and Simple Debt Dynamics: The Case of Brazil and Argentina," Research Memorandum 034, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:umamer:2002034
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    Cited by:

    1. Jasper Lukkezen & Hugo Rojas-Romagosa, 2012. "When is debt sustainable?," CPB Discussion Paper 212, CPB Netherlands Bureau for Economic Policy Analysis.

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