Terms of trade, macroeconomic dynamics and default decisions
Carregando...
Arquivos
Data
2015-03-27
Autores
Orientador(res)
Guimarães, Bernardo de Vasconcellos
Métricas
Título da Revista
ISSN da Revista
Título de Volume
Resumo
There is substantial evidence that terms of trade behavior are relevant to understand both the macroeconomic dynamics and the default risk of emerging markets. Nevertheless, the literature of sovereign debt that follows Eaton and Gerzovitz (1981) and Arellano (2008) has not yet adequately explored the connections between terms of trade and default incentives. We advance in this field, introducing terms of trade volatility to the model proposed by Mendoza and Yue (2012), where the sovereign debt decisions are linked to a general equilibrium model for the domestic economy. We find that an economy that faces stochastic terms of trade innovations can produce a consumption variability that highly exceeds the output variability, which is a key stylized fact of emerging markets business cycles. Our exercises also show that default episodes are driven by sudden shifts in the terms of trade but are no necessary related with bad times.