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Document Type:Latin Dissertation
Language of Document:English
Record Number:55390
Doc. No:TL25344
Call number:‭3230002‬
Main Entry:Garima Vasishtha
Title & Author:Domestic and external debt of emerging markets: Implications for fiscal and monetary policyGarima Vasishtha
College:University of California, Santa Cruz
Date:2006
Degree:Ph.D.
student score:2006
Page No:143
Abstract:Although international debt has been the long-standing focus of investors and academics, recent developments in emerging markets suggest that domestic debt is a more interesting object of inquiry. This dissertation focuses on the determinants of domestic and foreign borrowing by emerging market sovereigns, and analyzes the implications of increased domestic borrowing for debt defaults. It also analyzes the impact of domestic-currency debt held by foreigners on the time-consistency of monetary policy. Further, it analyzes the interaction between fiscal and monetary policy in emerging economies. The first chapter develops a model of an emerging economy in which the government can selectively default on its domestic or external debt. The model shows that the differential ability of domestic and foreign creditors to punish the government creates a gap in the expected default costs to the sovereign, and hence a differential in its propensity to default on its domestic versus foreign debt. The extent to which the possibility of differential treatment of creditors affects the composition of debt is explored. Results show that a country characterized by volatile output, sovereign risk, and costly tax collection will want to borrow in domestic as well as in international markets. The second chapter focuses on the time-consistency problem of monetary policy, and analyzes how this problem is affected by the presence of nominal debt held by domestic and foreign creditors. The government in the model cares about the welfare of its citizens but is indifferent to the welfare of foreigners. Results show that the time-inconsistency problem is reinforced by any nominal debt issued to foreigners. The third chapter examines two aspects of the interaction between fiscal and monetary policy in emerging economies. First, it explores the interest rate-inflation relationship in economies with different levels of debt. Results show that interest rate-inflation elasticity weakens with debt/GDP and external debt/GDP. Second, it utilizes high frequency data from Brazil, Turkey, and Poland to examine how market-determined variables react to economic news. Results suggest that when vulnerabilities are high, budget news has the most significant impact on country spreads and interest rates, and the impact of monetary policy is weakened.
Subject:Social sciences; Domestic debt; Emerging markets; External debt; Fiscal policy; Monetary policy; Economics; 0501:Economics
Added Entry:K. M. Kletzer
Added Entry:University of California, Santa Cruz