Working Paper: NBER ID: w9606
Authors: Assaf Razin; Efraim Sadka
Abstract: We develop a model that captures important features of debt crises of the Brazilian type. Its applicability to Brazil lies in the fact that (1) macro fundamentals were sound in the wake of the crisis (e .g., a non-negligible primary surplus, a relatively low debt/GDP ratio, low inflation, etc.); and (2) the trigger for the crisis appears to be the forthcoming elections, with an expected regime change.
Keywords: No keywords provided
JEL Codes: F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| forthcoming elections (K16) | market perceptions of risk (D81) |
| market perceptions of risk (D81) | investment levels (F21) |
| forthcoming elections (K16) | investment levels (F21) |
| negative expectations about creditworthiness (G21) | higher risk premiums (G22) |
| higher risk premiums (G22) | discourage investment (F21) |
| political uncertainty (D89) | sound macroeconomic fundamentals (E66) |
| political environment shifts expectations towards higher risk (G38) | downward spiral in investment and economic performance (E32) |
| raising the primary surplus (H69) | stabilize the economy (E63) |
| cutting spending (H56) | stabilize the economy (E63) |
| raising taxes (H29) | stabilize the economy (E63) |