Jahjah, Samir; Montiel, Peter - In: Open Economies Review 18 (2007) 1, pp. 77-93
We explore the interactions between exchange rate and fiscal policy, and default on external debt. Exchange rate policy … government to set the exchange rate at a level in which partial default occurs. In this case multiple equilibria exist, with one … featuring high interest rate, overvalued exchange rate, low level of output, and default. Default is also an equilibrium under a …