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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:

Date	Event
2006	Published

Number:

No.743

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Economic and Social Research Council (Great Britain) (ESRC)

References:

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