Hello experts, i want to work on the effect of government increasing external debt on financial markets, i want to know if there is existing theory or literature related? Also if there is the need to use an overlapping generation model to determine the payback procedure?
Dear Joseph,
I guess this is not a matter of a whole theory, but there are specific models analyzing this relationship. You can read some of these relationships in this paper, available here at researchgate
https://www.google.com.br/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwj-xfjnn_7SAhVEHJAKHeJIBCoQFgghMAA&url=https%3A%2F%2Fwww.researchgate.net%2Fpublication%2F285525706_Post_Keynesian_Macroeconomic_Policy_Regime&usg=AFQjCNFeOOJd6Rc_e_39U_e2oyUJL-ZKvw
External government debt in the case of peripheral countries are not made in their own currencies. This fact has strong effects over their exchange rate markets. Also, there is a strong relation between the interest rate paid on external bonds and the yield curve of the domestic financial markets.
On your second question, I am not able to reply it.
All the best
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