A sovereign debt model with trade credit and reserves
Kohlscheen, Emanuel and O'Connell, Stephen A. (2006) A sovereign debt model with trade credit and reserves. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.743).
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This paper analyzes sovereign debt in an economy in which the availability of short-term trade credit reduces international trade transaction costs. The model highlights the distinction between gross and net international reserve positions. Borrowed reserves provide net wealth and liquidity services during a negotiation, as long as they are not fully attachable by creditors. Moreover, reserves strengthen the bargaining position of a country by shielding it from a cut-off from short-term trade credits thereby diminishing its degree of impatience to conclude a negotiation. We show that competitive banks do lend for the accumulation of borrowed reserves, which provide partial insurance.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HJ Public Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Debts, Public -- Econometric models, International trade -- Econometric models, Reserves (Accounting), Credit insurance|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||58|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
Aizenman, J., Marion, N. (2004) International reserve holdings with sovereign risk and costly tax collection. Economic Journal 114, 569-591.
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