Juan Carlos Hatchondo joins Department of EconomicsFebruary 11, 2019
Story and Photo by Rob Rombouts
Juan Carlos Hatchondo has joined the Department of Economics as a Professor.
Hatchondo completed his PhD at the University of Rochester, and focuses on macroeconomics, specifically researching international finance and sovereign debt.
Hatchondo studies global and local factors that affect incentives for sovereign states to borrow monies or to default on their sovereign debt.
Using emerging market data, Hatchondo evaluates different debt management policies proposals to improve the function of sovereign debt markets. The work completed can have direct policy implications for countries, or for international organizations.
Hatchondo often works with Leonardo Martinez, an economist who works with the International Monetary Fund, and the IMF has used the work of Hatchondo and Martinez while discussing the risks of accumulating sovereign debt.
In 2018, Hatchondo and Martinez published a paper studying the accumulation of foreign reserves by countries that also carry foreign debt. “This is like having debt while also have a chequing account,” said Hatchondo, “and continuing to put money into the account instead of paying the debt.”
The researchers found this situation can be justified by ‘roll-over risk’.
“Governments encounter fluctuations in the demand for the bonds they issue,” said Hatchondo. “They may face difficulty getting new loans to pay expiring debts. Having foreign reserves is a useful buffer against this.”
In February 2019, Timothy Lane, Deputy Governor of the Bank of Canada, referenced this work, in regards to Canada’s level of foreign exchange reserves, during a speech at Peterson Institute for International Economics.
Hatchondo’s current research focuses on determining a metric for measure their government debt policies against.
“We can study the merits of merit different policy proposals,” said Hatchondo, “but one thing that is lacking is a measure of how much better we can do compared to those proposals.”
“The highest degree of fiscal discipline would be achieved when governments promise a path for sovereign borrowing, but no government can credibly do that,” said Hatchondo. Nonetheless, by determining the best possible approach to paying sovereign debt, with the best possible economic performance of a
country, governments could determine how affective other policies could be.
Hatchondo is excited to be at Western. It’s very collegial,” said Hatchondo. “I like my new colleagues and I am looking forward to working with grad students.”