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    Volatility and the debt-intolerance paradox

    Catão, L. and Kapur, Sandeep (2006) Volatility and the debt-intolerance paradox. IMF Staff Papers 53 (2), pp. 195-218. ISSN 1020-7635.

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    Abstract

    A striking feature of sovereign lending is that many countries with moderate debtto-income ratios systematically face higher spreads and more stringent borrowing constraints than other countries with far higher debt ratios. Earlier research has rationalized the phenomenon in terms of sovereign reputation and countries' distinct credit histories. This paper provides theoretical and empirical evidence to show that differences in underlying macroeconomic volatility are key. While volatility increases the need for international borrowing to help smooth domestic consumption, the ability to borrow is constrained by the higher default risk that volatility engenders

    Metadata

    Item Type: Article
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Sarah Hall
    Date Deposited: 06 Jul 2020 17:42
    Last Modified: 06 Jul 2020 17:42
    URI: http://eprints.bbk.ac.uk/id/eprint/32464

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