Devaluation beliefs lead to debt crisis in small open economies.
The article discusses how a government's decision to devalue its currency can impact its economy and debt repayment. When a government devalues its currency, it can lead to a decrease in domestic investments and an increase in foreign holdings. This can help the economy recover, but it also makes repaying international debt more expensive. The researchers found that in countries like Argentina, devaluation can increase the likelihood of defaulting on debt.