A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data

24 Pages Posted: 15 Mar 2004 Last revised: 23 Sep 2013

See all articles by Marcio G. P. Garcia

Marcio G. P. Garcia

Pontifical Catholic University - Department of Economics

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: March 2004

Abstract

In this paper we study the question of debt sustainability from a risk management perspective. The debt accumulation equation for any country involves variables that are stochastic and closely intertwined. When these aspects are taken into consideration the notion of debt sustainability is expanded to studying the stochastic properties of the debt dynamics. We illustrate the methodology by studying the Brazilian case. We find that even though the debt could be sustainable in the absence of risk, there are paths in which it is clearly unsustainable. Furthermore, we show that properties of the debt dynamics are closely related to the spreads on sovereign dollar denominated debt.

Suggested Citation

Garcia, Marcio G. P. and Rigobon, Roberto, A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data (March 2004). NBER Working Paper No. w10336. Available at SSRN: https://ssrn.com/abstract=515229

Marcio G. P. Garcia

Pontifical Catholic University - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil
(5521) 274 2797 or 294 5490 (Phone)
(5521) 294 2095 (Fax)

Roberto Rigobon (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-447
Cambridge, MA 02142
United States
617-258-8374 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
119
rank
230,343
Abstract Views
2,081
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information