01944cas a2200241 a 4500 AALejournalIMF016649 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475597738 1018-5941 BD-DhAAL BD-DhAAL Asonuma, Tamon. Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics / Tamon Asonuma. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (48 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Emerging countries experience real exchange rate depreciations around defaults. In this paper, we examine this observed pattern empirically and through the lens of a dynamic stochastic general equilibrium model. The theoretical model explicitly incorporates bond issuances in local and foreign currencies, and endogenous determination of real exchange rate and default risk. Our quantitative analysis replicates the link between real exchange rate depreciation and default probability around defaults and moments of the real exchange rate that match the data. Prior to default, interactions of real exchange rate depreciation, originated from a sequence of low tradable goods shocks with the sovereign's large share of foreign currency debt, trigger defaults. In post-default periods, the resulting output costs and loss of market access due to default lead to further real exchange rate depreciation. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2016/037 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/037/001.2016.issue-037-en.xml IMF e-Library