Emerging Countries' External Debt. How Should One Neutralize Hard-Currency Volatility?

Instability ?and, in particular, the volatility of hard-currency exchange rates ?is a strong characteristic of the financial global environment. Volatility has implications on the emerging economies?competitiveness and external-debt burden. This paper develops a simple model centered on debt dynamic...

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Bibliographic Details
Published inRevue économique Vol. 54; no. 5; pp. 1033 - 1055
Main Authors Meunier, Nicolas, Miotti, Egidio Luis, Laurent, Pierre, Quenan, Carlos, Seltz, Véronique
Format Journal Article
LanguageEnglish
Published Presses de Sciences-Po 2003
SeriesRevue économique
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Summary:Instability ?and, in particular, the volatility of hard-currency exchange rates ?is a strong characteristic of the financial global environment. Volatility has implications on the emerging economies?competitiveness and external-debt burden. This paper develops a simple model centered on debt dynamics. We show that an emerging economy can stabilize the domestic value of its external debt using three parameters: the currency composition of its debt, its exchange-rate regime, and the geographic structure of its trade.