oa South African Journal of Economic and Management Sciences - Debt sustainability and exchange rate stabilisation: towards a new theory
|Article Title||Debt sustainability and exchange rate stabilisation: towards a new theory|
|© Publisher:||University of Pretoria|
|Journal||South African Journal of Economic and Management Sciences|
|Affiliations||1 Department of Economics, University of Pretoria|
|Publication Date||Sep 2000|
|Pages||436 - 445|
|Keyword(s)||Debt, Debt sustainability, Domestic non-price competitiveness, Economics, Exchange rate stabilization, Exchange rates, F 31, F 34, JEL, Monetary authorities, Trade and Trade balances|
ISI Social Science
The sustainability of debt is a crucial issue in developing and transitional economies. In this paper, it is shown that a bubble in the real exchange rate could result in a sudden collapse in the sustainability of a country's debt. Furthermore, it is shown that monetary authorities may be unable to control the exchange rate, as its dynamics also depends on that of the debt. Hence, the only feasible policy measure to stabilise the real exchange rate is to increase domestic non-price competitiveness to ensure an improvement in the trade balance of the economy.
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