The Brazilian currency turmoil of 2002: a nonlinear analysis

Goretti, Manuela

doi:10.1002/ijfe.273

Cited by 19 publications

(7 citation statements)

References 26 publications

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“…Block and Vaaler (2004) and Vaaler et al (2005) provide econometric evidence that electoral risk is associated with significant increases in sovereign spreads in developing countries. Similar results for the Brazilian economy can be found in Goretti (2005). Manasse and Roubini (2009) find that the probability of a debt crisis increases if an election takes place.…”

Section: Beyond Narrative Evidencesupporting

confidence: 75%

The impact of bailouts on political turnover and sovereign default risk

Prein

Scholl

2021

Journal of Economic Dynamics and Control

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This paper develops a stochastic dynamic politico-economic model of sovereign debt to analyze the impact of bailouts on sovereign default risk and political turnover. We consider a small open economy in which the government has access to official loans conditional on the implementation of austerity policies. There is a two-party system in which both parties care about the population's welfare but differ in an exogenous utility cost of default. Political turnover is the endogenous outcome of the individual voting behavior. In a quantitative exercise we apply the model to Greece and find that bailout episodes are characterized by an increased risk of political turnover. In the short run, stricter conditionality raises the risk of sovereign default because it reduces the participation rate in bailout programs. In the long run, however, stricter conditionality limits the accumulation of debt which lowers sovereign default risk. We show that the frequency of political turnover is U-shaped in the strength of conditionality.

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Section: Beyond Narrative Evidencesupporting

confidence: 75%

The impact of bailouts on political turnover and sovereign default risk

Prein

Scholl

2021

Journal of Economic Dynamics and Control

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“…For the purpose of the analysis, we use aggregate cross-country time series at quarterly frequency over the period . The EMP index is defined as the average of changes in the nominal exchange rate, in the short term interest rate and in the international ratio of reserves to broad money, weighted by the variable respective volatility 40 See Goretti (2005) for an application of endogenous Markov-switching model to Brazil in 2002. and benchmarked to the US economy. Cross-country aggregation is obtained by weighting each country EMP index by its GDP weight in the sample group.…”

Section: Discussionmentioning

confidence: 99%

Modeling Aggregate Use of Fund Resources: Analytical Approaches and Medium-Term Projections

Ghosh

Zalduendo²,

Goretti³

et al. 2007

IMF Working Papers

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This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper presents two approaches to modeling the use of IMF resources in order to gauge whether the recent decline in credit outstanding is a temporary or a permanent phenomenon. The two approaches-the time series behavior of credit outstanding and a two-stage program selection and access model-yield the same conclusion: the use of IMF resources is likely to decline sharply. Specifically, credit outstanding is projected to decline from an average of SDR 50 billion over 2000−05 to SDR 8 billion over 2006−10. Stochastic simulations suggest that it is unlikely to be much higher. These results are based on WEO projections with a correction for historically-observed over-optimistic biases. Alternative scenarios assuming a weaker economic performance or a less benign global environment do not alter these results.

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“…This behavior is often mentioned as an example of the importance of political factors as determinants of default decisions. As discussed by Goretti (2005), the concerns raised because of left‐wing candidate Luiz Inacio “Lula” Da Silva's declarations in favor of a debt repudiation is the most accepted explanation for the sharp increase in the country spread preceding the Brazilian election. Pimentel and Murphy (2006) explain that, more recently, the elected president of Ecuador—Rafael Correa—declared his intentions to restructure the country's debt, which was linked to a decline in sovereign bond prices.…”

Section: Introductionmentioning

confidence: 90%

Heterogeneous Borrowers in Quantitative Models of Sovereign Default*

Hatchondo

Martínez

Sapriza

2009

Int Economic Review

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We extend the model used in recent quantitative studies of sovereign default, allowing policymakers of different types to stochastically alternate in power. We show that a default episode may be triggered by a change in the type of policymaker in office, and that such a default is likely to occur only if there is enough political stability and if policymakers encounter poor economic conditions. Under high political stability, political turnover enables the model to generate a weaker correlation between economic conditions and default decisions, a higher and more volatile spread, and lower borrowing levels after a default episode. Copyright � (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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The Brazilian currency turmoil of 2002: a nonlinear analysis

Cited by 19 publications

References 26 publications

The impact of bailouts on political turnover and sovereign default risk

The impact of bailouts on political turnover and sovereign default risk

Modeling Aggregate Use of Fund Resources: Analytical Approaches and Medium-Term Projections

Heterogeneous Borrowers in Quantitative Models of Sovereign Default*

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