Self Fulfilling Debt Crisis in an Oil Exporting Economy
Colegio Universitario Cardenal Cisneros
November 27, 2010
USAEE-IAEE Working Paper No. 10-056
Venezuela's government presents a debt structure biased toward instruments with short maturities mostly held by international bankers. However, the government has access to windfall revenues associated to oil exports that enhance its creditworthiness. A version of Cole and Kehoe (2000) model of debt crises augmented to incorporate income windfalls in the government sector is presented, and the possibility for a non-default equilibrium evaluated. Default is predicted for the Venezuelan economy without favorable terms of trade shocks. A crisis can be eliminated for a given size of the income windfall though. For those cases where the economy fail to exit the crisis zone, the combination of policies needed to abandon such a region is far more feasible to implement when a big oil rent is present.
Number of Pages in PDF File: 25
Keywords: Public Debt, Default, Multiple Equilibria, Oil Windfall
JEL Classification: E60, F34, H30working papers series
Date posted: November 27, 2010 ; Last revised: December 20, 2010
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