NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

External Debt, Budget Deficits and Disequilibrium Exchange Rates

Rudiger Dornbusch

NBER Working Paper No. 1336 (Also Reprint No. r0675)
Issued in April 1984
NBER Program(s):   ITI   IFM

The paper investigates the sources of debt and debt difficulties for a group of Latin American countries. It is argued that external shocks -- oil, interest rates, world recession and the fall in real commodity prices -- cannot account by themselves for the problems. Budget deficits that accommodate terms of trade deterioration and disequilibrium exchange rates are central to a complete explanation. The paper documents that in Chile an extreme currency overvaluation led to a massive shift into imported consumer durables while in Argentina overvaluation in conjunction with financial instability led to large-scale capital flight. In the case of Brazil the budget deficit is the explanation for the growth in external indebtedness.The difference in the experience of the three countries reflects the difference in their openness to the world economy.

download in pdf format
   (500 K)

email paper

This paper is available as PDF (500 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1336

Published: Dornbusch, Rudiger. "External Debt, Budget Deficits and Disequilibrium Exchange Rates." International Debt and the Developing Countries, edited by G . Smith and J. Cuddington. Washington D.C.: World Bank, (March 1985).

Users who downloaded this paper also downloaded these:
Collins and Park w2596 External Debt and Macroeconomic Performance in South Korea
Dooley and Kletzer w4793 Capital Flight, External Debt and Domestic Policies
Reinhart and Rogoff w15639 Growth in a Time of Debt
Cardoso and Fishlow External Debt, Budget Deficits, and Inflation
Ball and Mankiw w5263 What Do Budget Deficits Do?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us