Mechanisms of default risk transmission and economic policy coordination

Junior, Karlo Marques
Correia, Fernando Motta

2016-12

LC/G.2694-P
2

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This paper analyses the coordination between monetary and fiscal policy in an emerging economy with an inflation-targeting monetary regime, in a context in which default risk shocks can lead to macroeconomic imbalances. It develops a macrodynamic model in order to capture the mechanisms of default risk transmission and its effects on the definition of reaction functions for the monetary and fiscal authorities. The main findings of the model point to the existence of new mechanisms of default risk transmission associated with price and fiscal stability.

EMERGING MARKETS; POLITICA ECONOMICA; POLITICA FISCAL; INFLACION; POLITICA MONETARIA; MACROECONOMIA; DEUDA EXTERNA; MERCADOS EMERGENTES; ECONOMIC POLICY; FISCAL POLICY; INFLATION; MONETARY POLICY; MACROECONOMICS; EXTERNAL DEBT;