English, Article, Journal or magazine article edition: Fiscal Policy and Default Risk in Emerging Markets. Juan M. Sanchez; Gabriel Cuadra; Horacio Sapriza

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Bookmark: http://trove.nla.gov.au/version/47612
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Fiscal Policy and Default Risk in Emerging Markets.
Author
  • Juan M. Sanchez
  • Gabriel Cuadra
  • Horacio Sapriza
Physical Description
  • preprint
Notes
  • Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in emerging economies.
  • Business cycles ; Macroeconomics
  • RePEc:fip:fedrwp:09-01
  • Emerging economies usually experience procyclical public expenditures, tax rates and private consumption, countercyclical default risk, interest rate spreads and current account and higher volatility in consumption than in output. In this article we develop a dynamic stochastic equilibrium model of a small open economy with endogenous fiscal policy, endogenous default risk and country interest rate spreads in an incomplete credit markets framework that rationalizes these empirical findings.
  • Procyclical fiscal policy, Sovereign default
  • RePEc:bdm:wpaper:2007-03
Language
  • English
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