[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/904.html
   My bibliography  Save this paper

Interest Rates, Growth and External Debt: The Macroeconomic Impact of Mexico's Brady Deal

Author

Listed:
  • Claessens, Stijn
  • Oks, Danel
  • van Wijnbergen, Sweder
Abstract
Interest rates fell sharply after Mexico's Brady deal, and private investment and growth recovered. We show, econometrically, that debt relief influenced the macroeconomy mostly though its favourable impact on uncertainty. While the impact of the variability of the future net transfer is significant, the impact of the net transfer itself is not. Specifically the favourable impact on uncertainty about future exchange rate crises is the dominant explanation of the macroeconomic response to debt relief. These results confirm the beneficial macroeconomic effects of debt relief, but reject the debt overhang hypothesis as a dominant factor.

Suggested Citation

  • Claessens, Stijn & Oks, Danel & van Wijnbergen, Sweder, 1994. "Interest Rates, Growth and External Debt: The Macroeconomic Impact of Mexico's Brady Deal," CEPR Discussion Papers 904, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:904
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=904
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. J. Bradford De Long and Barry Eichengreen., 1991. "The Marshall Plan: History's Most Successful Structural Adjustment Program," Economics Working Papers 91-184, University of California at Berkeley.
    2. Helpman, Elhanan, 1989. "The Simple Analytics of Debt-Equity Swaps," American Economic Review, American Economic Association, vol. 79(3), pages 440-451, June.
    3. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    4. Alessandro Missale & Francesco Giavazzi, 2003. "Public Debt Management in Brazil," Development Working Papers 178, Centro Studi Luca d'Agliano, University of Milano.
    5. Giavazzi, Francesco & Pagano, Marco, 1989. "Confidence Crises and Public Debt Management," CEPR Discussion Papers 318, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Klimenko, Mikhail M., 2002. "Trade interdependence, the international financial institutions, and the recent evolution of sovereign-debt renegotiations," Journal of International Economics, Elsevier, vol. 58(1), pages 177-209, October.
    2. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077, Elsevier.
    3. Barbone, Luca & Forni, Lorenzo, 1997. "Are markets learning? : behavior in the secondary market for Brady bonds," Policy Research Working Paper Series 1734, The World Bank.
    4. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
    5. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
    6. Claessens, Stijn & Detragiache, Enrica & Kanbur, Ravi & Wickham, Peter, 1996. "Analytical aspects of the debt problems of heavily indebted poor countries," Policy Research Working Paper Series 1618, The World Bank.
    7. de Aghion, Beatriz Armendariz & de Hinestrosa, Patricia Armendariz, 1995. "Debt relief, growth and price stability in Mexico," Journal of Development Economics, Elsevier, vol. 48(1), pages 135-149, October.
    8. Roland Mestel & Karl Steininger, 1995. "Ansätze zur Behebung des Kapitalangebotsmangels in Entwicklungsländern. Die Zeit nach der Schuldenkrise," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 21(1), pages 139-173.
    9. Geske Dijkstra, 2013. "What Did US$18 bn Achieve? The 2005 Debt Relief to Nigeria," Development Policy Review, Overseas Development Institute, vol. 31(5), pages 553-574, September.
    10. Canuto, Otaviano & Pinto, Brian & Prasad, Mona, 2012. "Orderly sovereign debt restructuring : missing in action !," Policy Research Working Paper Series 6054, The World Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mats Persson & Torsten Persson & Lars E. O. Svensson, 1998. "Debt, Cash Flow and Inflation Incentives: A Swedish Example," International Economic Association Series, in: Guillermo Calvo & Mervyn King (ed.), The Debt Burden and its Consequences for Monetary Policy, chapter 2, pages 28-66, Palgrave Macmillan.
    2. Laura Alfaro & Fabio Kanczuk, 2006. "Deuda soberana: indexación y vencimiento," Research Department Publications 4460, Inter-American Development Bank, Research Department.
    3. Alesina, Alberto F & Grilli, Vittorio & Milesi-Ferretti, Gian Maria, 1993. "The Political Economy of Capital Controls," CEPR Discussion Papers 793, C.E.P.R. Discussion Papers.
    4. Alexandre B. Cunha, 2006. "Implications of the Modigliani-Miller Theorem for the Study of Exchange Rate Regimes," IBMEC RJ Economics Discussion Papers 2006-03, Economics Research Group, IBMEC Business School - Rio de Janeiro.
    5. Vittorio Grilli & Nouriel Roubini, 1989. "Financial Integration, Liquidity and Exchange Rates," NBER Working Papers 3088, National Bureau of Economic Research, Inc.
    6. Oks, Daniel F., 1992. "Stabilization and growth recovery in Mexico : lessons and dilemmas," Policy Research Working Paper Series 833, The World Bank.
    7. Vivian Lei & Steven Tucker & Filip Vesely, 2010. "Forgive or buy back: an experimental study of debt relief," Review of Economic Design, Springer;Society for Economic Design, vol. 14(3), pages 291-309, September.
    8. Cohen, Daniel, 1995. "Large external debt and (slow) domestic growth a theoretical analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1141-1163.
    9. Arslanalp, Serkan & Henry, Peter B., 2003. "The World's Poorest Countries: Debt Relief or Aid?," Research Papers 1809, Stanford University, Graduate School of Business.
    10. Pierre-Richard Agénor & Joshua Aizenman, 2005. "Financial sector inefficiencies and the debt Laffer curve," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 1-13.
    11. Alessandro Missale & Francesco Giavazzi & Pierpaolo Benigno, "undated". "Managing the Public Debt in Fiscal Stabilizations: the Evidence," Working Papers 118, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    12. Henry, Peter B. & Arslanalp, Serkan, 2003. "Helping the Poor to Help Themselves: Debt Relief or Aid?," Research Papers 1838, Stanford University, Graduate School of Business.
    13. Pierre-Richard Agenor & Joshua Aizenman, 1999. "Financial Sector Inefficiencies and Coordinate Failures: Implications for Crisis Management," NBER Working Papers 7446, National Bureau of Economic Research, Inc.
    14. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
    15. Bulow, Jeremy & Rogoff, Kenneth & Ning S. Zhu & DEC & a descri & Buyback arrangements, 1994. "Estimating the efficiency gains of debt restructuring," Policy Research Working Paper Series 1317, The World Bank.
    16. de Mendonça, Helder Ferreira & Tiberto, Bruno Pires, 2014. "Public debt and social security: Level of formality matters," Economic Modelling, Elsevier, vol. 42(C), pages 490-507.
    17. Arsène Aurelien NJAMEN KENGDO & Luc NEMBOT NDEFFO & Désiré AVOM, 2020. "The Effect of Foreign Debt on Economic Growth in Sub-Saharan African Sub-Regions," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 109-114.
    18. Joshua C. Hall, Serkan Karadas and Minh Tam T. Schlosky, 2018. "Is There Moral Hazard in the Heavily Indebted Poor Countries (HIPC) Initiative Debt Relief Process?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(3), pages 1-24, September.
    19. Harold L. Cole & Timothy J. Kehoe, 1996. "A self-fulfilling model of Mexico's 1994-95 debt crisis," Staff Report 210, Federal Reserve Bank of Minneapolis.
    20. Danny Cassimon & Dennis Essers & Karel Verbeke, 2015. "What to do after the clean slate? Post-relief public debt sustainability and management," BeFinD Working Papers 0103, University of Namur, Department of Economics.

    More about this item

    Keywords

    Debt Relief; Debt Uncertainty; Investment and Uncertainty; Uncertainty and Economic Growth;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:904. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.