Growth, External Debt and Sovereign Risk in a Small Open Economy [electronic resource]
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TextSeries: IMF Working Papers; Working Paper ; No. 89/54Publication details: Washington, D.C. : International Monetary Fund, 1989Description: 1 online resource (40 p.)ISBN: 1451969473 :ISSN: 1018-5941Subject(s): Debt | External Debt | Foreign Debt | Interest | Risk PremiumAdditional physical formats: Print Version:: Growth, External Debt and Sovereign Risk in a Small Open EconomyOnline resources: IMF e-Library | IMF Book Store Abstract: This paper constructs and analyzes an optimizing model of a highly-indebted small open economy. An important innovation in the model is the incorporation of sovereign risk through the specification of an upward-sloping foreign debt supply function. The model is used to examine the interaction between external debt and growth in response to various policies and exogenous disturbances. It is shown that structural policies intended to reduce the fiscal deficit or increase productivity can lead to tradeoffs in their effect on capital accumulation and the stock of debt.
This paper constructs and analyzes an optimizing model of a highly-indebted small open economy. An important innovation in the model is the incorporation of sovereign risk through the specification of an upward-sloping foreign debt supply function. The model is used to examine the interaction between external debt and growth in response to various policies and exogenous disturbances. It is shown that structural policies intended to reduce the fiscal deficit or increase productivity can lead to tradeoffs in their effect on capital accumulation and the stock of debt.
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