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    Missing link: volatility and the debt intolerance paradox

    Catão, L. and Kapur, Sandeep (2004) Missing link: volatility and the debt intolerance paradox. Working Paper. International Monetary Fund.

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    A striking feature of sovereign lending is that many countries with moderate debt-to-income ratios systematically face higher spreads and more stringent borrowing constraints than others 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.


    Item Type: Monograph (Working Paper)
    Additional Information: IMF Working Paper 04/51
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: Sarah Hall
    Date Deposited: 14 Jul 2020 12:46
    Last Modified: 02 Aug 2023 18:01


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