A Brazilian-Type Debt Crisis: Simple Analytics

We develop a model that captures important features of debt crises of the Brazilian type. Its applicability to Brazil lies in the fact that (1) macro fundamentals were sound in the wake of the crisis (e .g., a non-negligible primary surplus, a relatively low debt/GDP ratio, low inflation, etc.); and (2) the trigger for the crisis appears to be the forthcoming elections, with an expected regime change.