Real Exchange Rates Dynamic and Debt Sustainability in Developing Countries

Abstract

The main objective of this paper is to study the relationship between real exchange rates dynamic and debt in developing countries. Two kinds of definition of debt sustainability are used for study the impact of external debt on real exchange rates. The main surplus of this study is to introduce "strong version" of debt sustainability for the determination of the equilibrium real exchange rates. The "strong version" of debt sustainability is obtained with the conclusions of "debt overhang" theory in developing countries.