Disequilibria and Risk Premia
Disequilibria and Risk Premia
Argentina’s Experience During the 2000s from a Latin American Perspective
the chapter elaborates on the sources of risk that arise from the interaction of the goods and financial markets by revisiting Frenkel’s work on exchange rate and sovereign risk premia. The authors dispute the narrow view that states that a run on the domestic currency or a rising sovereign risk premium are always caused by an increase of the foreign debt or a decline in international reserves. Market disequilibrium dynamics may not only be driven by these factors but also by declining incentives to invest.
Keywords: sovereign risk premia, external debt, run on domestic currency, investment incentives, market disequilibrium
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