Texto para discussão 09/2010

External debt sustainability under different policy rules
Gabriel Porcile*, Alexandre C. Gomes de Souza**, Ricardo Viana***

Abstract
The paper develops a Kaleckian macroeconomic model which discusses the conditions that may lead to an external debt crisis in a small developing economy fully integrated to global goods and financial markets. The focus is on how policy rules affect the stability of the economy. Two kinds of policy rules are discussed, namely an inflation rate target and a real exchange rate target, implemented through an interest rate operation procedure (IROP). It is argued that in both cases the evolution of the real exchange rate should be closely monitored to avoid external instability.

Keywords: central banks; open economy; external crisis.

JEL: E12, E58, F43

* Department of Economics, Universidade Federal do Paraná (UFPR), and researcher at The National Council for Scientific and Technological Development (CNPq).
** Department of Economics, Brazilian Central Bank, Curitiba.
*** Department of Physics, Universidade Federal do Paraná (UFPR), and researcher at The National Council for Scientific and Technological Development (CNPq).

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