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Sovereign Defaults: The Role of Volatility
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Author/Editor: |
Catão, Luis | Sutton, Bennett |
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September 1, 2002 |
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Electronic Access: |
Free Full Text (PDF file size is 879KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
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Summary: While the relationship between volatility and credit risk is central to much of the literature on finance and banking, it has been largely neglected in empirical macro studies on sovereign defaults. This paper presents new econometric estimates for a panel of 25 emerging market countries over 1970-2001, breaking down aggregate volatility into its external and domestic policy components. We find that countries with historically higher macroeconomic volatility are more prone to default, and particularly so if part of this volatility is policy-induced. Reducing policy volatility thus appears to be key to improving a country's credit standing.
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Series: |
Working Paper No. 02/149 |
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Subject(s): |
Debt problems | Exchange rate instability | Emerging markets | Sovereign Debt Restructuring Mechanism |
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Author's keyword(s): |
Sovereign debt
| macroeconomic volatility
| emerging markets
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Published: |
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September 1, 2002 |
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ISBN/ISSN: |
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1934-7073 |
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Format: |
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Paper |
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Stock No: |
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WPIEA1492002 |
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Pages: |
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26 |
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Price: |
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US$15.00
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Price Delivery Note: |
Prepayment required for individual copies. An annual subscription is $375.00 a year. It includes 12 monthly shipments and priority mail delivery. The Stock No. for the subscription is WPEA. |
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Please address any questions about this title to publications@imf.org.
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