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A sovereign debt model with trade credit and reserves

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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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Abstract

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
Official Date: 2006
Dates:
DateEvent
2006Published
Number: No.743
Number of Pages: 58
Status: Not Peer Reviewed
Access rights to Published version: Open Access (Creative Commons)
Funder: Economic and Social Research Council (Great Britain) (ESRC)

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