Credit Risk and Sustainable Debt: A Model and Estimations of Why the Euro is Stable in the Long-Run

Posted: 22 Feb 2006

See all articles by Willi Semmler

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Peter Woehrmann

University of Zurich

Abstract

Sustainable debt has become the key issue in rating of private as well as sovereign debtors. The problem of how to estimate sustainable debt has also been at the center of the debate over the Asian 1997-1998 financial crisis. If the external value of the currency depends on the external debt of a country, it is necessary to estimate the creditworthiness of the country. This paper studies credit risk and sustainable debt in the context of a dynamic model. For a dynamic growth model with an additional equation for the evolution of debt, we demonstrate of how to compute sustainable debt and creditworthiness. The model is estimated by employing time series data for the core countries of the Euro-area. The computations show that the Euro-area has large external assets. Using time series methods, the sustainability of external debt (assets) is estimated for those core countries of the Euro-area. Those estimations show that the Euro will be a stable currency in the long-run.

Keywords: Credit Risk, Sustainable Debt, Euro, Estimation

JEL Classification: F31, C61, C13

Suggested Citation

Semmler, Willi and Woehrmann, Peter, Credit Risk and Sustainable Debt: A Model and Estimations of Why the Euro is Stable in the Long-Run. Economic Modelling, Vol. 21, No. 6, pp. 1145-1160, December 2004 . Available at SSRN: https://ssrn.com/abstract=883585

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

Peter Woehrmann (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland
+41 0 44 634 3593 (Phone)
+41 0 44 634 4970 (Fax)

HOME PAGE: http://www.iew.unizh.ch/institute/people/index.en.php?action=query&oid=75107

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
484
PlumX Metrics