A Risk Management Approach To Emerging Market's Sovereign Debt Sustainability
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Overview: This paper published by National Bureau of Economic Research studies the question of debt sustainability from a risk management perspective. The debt accumulation equation for any country involves variables that are stochastic and closely intertwined. When these aspects are taken into consideration the notion of debt sustainability is expanded to studying the stochastic properties of the debt dynamics. The paper illustrates the methodology by studying the Brazilian case. Furthermore, it is shown that properties of the debt dynamics are closely related to the spreads on sovereign dollar denominated debt.