Sovereign debt defaults and currency crises in Latin America

Tjeerd Menno Boonman

Research output: ThesisThesis fully internal (DIV)

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Abstract

Since their independence in the early 19th century the economic history of Latin American countries is intertwined with financial crises. This thesis examines two types of financial crises, currency crises and sovereign debt crises, for four Latin American countries: Argentina, Brazil, Chile and Mexico.

We develop a model to examine whether the currency crises in the 2008-2009 period could have been predicted based on earlier currency crises. We find that currency crises since 1990 in Argentina, Brazil and Mexico are related to the situation in the banking sector, the debt position, commodity prices and institutional conditions. Our model is able to predict the currency crises in the period 2008-2009 for Argentina and Brazil, but not for Mexico.

Furthermore, we analyze sovereign debt crises since 1870 in Argentina, Brazil, Chile and Mexico. Our focus on a relatively homogenous group of countries over a long time span is consistent with the idea of recurring crises.
We develop an index that reflects difficulties of sovereign governments with debt obligations. The index is composed of government debt, the interest rate and the current account. With this index, we can analyze debt crises better, for example by examining the relationship with the business cycle.
We also investigate the impact of sovereign debt crises on GDP growth. This impact is relatively shortlived, but the cost in terms of lost economic output is high. However, there are major differences. We find that deep crises are associated with high commodity prices, high economic growth and high government expenditures in the years before the crisis.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • University of Groningen
Supervisors/Advisors
  • Sterken, Elmer, Supervisor
  • Jacobs, Jan, Co-supervisor
  • Kuper, Gerard, Co-supervisor
Award date10-Dec-2015
Place of Publication[Groningen]
Publisher
Print ISBNs978-90-367-8373-6
Electronic ISBNs978-90-367-8372-9
Publication statusPublished - 2015

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