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).

Preview

PDF WRAP_Kohlscheen_twerp_743.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (395Kb)

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
Date:	2006
Number:	No.743
Number of Pages:	58
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
References:	Aizenman, J., Marion, N. (2004) International reserve holdings with sovereign risk and costly tax collection. Economic Journal 114, 569-591. Atkeson, A. (1991) International lending with moral hazard and risk of repudiation. Econometrica 59, 4, 1069-1089. Binmore, K.G. (1980) Nash bargaining theory I-III, in Binmore, K.G. and Dasgupta, P. (eds.), Essays in Bargaining Theory. Blackwell. Bulow, J., Rogoff, K. (1989a) A constant recontracting model of sovereign debt. Journal of Political Economy 97, 1, 155-178. Bulow, J., Rogoff, K. (1989b) Sovereign debt: is to forgive to forget ? American Economic Review 79, 1, 43-50. Cohen, D., Sachs, J. (1986) Growth and external debt under risk of debt repudiation. European Economic Review 30, 529-560. Delaume, G. (1994) The foreign sovereign immunities act and public debt litigation: some fifteen years later. American Journal of International Law 88, 2, 257-279. Detragiache, E. (1996) Fiscal adjustment and official reserves in sovereign debt negotiations. Economica 63, 81-95. Dornbusch, R. (1984) Argentina since Martinez de Hoz. Mimeo. MIT. Eaton, J., Engers, M. (1999) Sanctions: some simple analytics. American Economic Review 89, 2, 409-414. Eaton, J., Gersovitz, M. (1981) Debt with potential repudiation: theoretical and empirical analysis. Review of Economic Studies 48, 289-309. Fernandez, R., Rosenthal, R. (1990) Strategic models of sovereign-debt renegotiations. Review of Economic Studies 57, 331-349. Frenkel, J., Boyanovic, J. (1981) Optimal international reserves: a stochastic framework. Economic Journal 91, 507-514. Grossman, H., van Huyck, J. (1988) Sovereign debt as a contingent claim: Excusable default, repudiation, and reputation. American Economic Review 78, 5, 1088-1097. Hellwig, M. (1986) Comments on ’The pure theory of country risk’ by J. Eaton, M. Gersovitz and J. Stiglitz. European Economic Review 30, 3, 521-527. Kaletsky, A. (1985) The costs of default. Priority Press. Kimbrough, K.P. (1986) Inflation, employment, and welfare in the presence of transactions costs. Journal of Money, Credit and Banking, vol. 18, 2, 127-140. Lucas, R. (1979) Sharing, monitoring, and incentives: Marshallian misallocation reasessed. Journal of Political Economy 79, 3, 501-521. Osborne, M.J., Rubinstein, A. (1990) Bargaining and markets. Academic Press, Inc. ISBN 0-12-528632-5. Rogoff, K. (1999) International institutions for reducing global financial instability. Journal of Economic Perspectives 13, 4, 21-42. Rose, A. (2005) One reason countries pay their debts: renegotiation and international trade. Journal of Development Economics 77, 1, 189-206. Rubinstein, A. (1982) Perfect equilibrium in a bargaining model. Econometrica 50, 97-109. Sidaoui, J. (2000) Macroeconomic aspects of the management of external debt and liquidity: reflections on the Mexican experience. In Monetary and Economic Department, Policy Papers No. 8: Managing Foreign Debt and Liquidity Risk. Basel, Switzerland. Bank for International Settlements. Smitt-Grohe, S., Uribe, M. (2004) Optimal fiscal and monetary policy under sticky prices. Journal of Economic Theory 114, 198-230. Sutton, J. (1986) Non-cooperative bargaining theory: An introduction. Review of Economic Studies LIII, 709-724. Sturzenegger, F., Zettelmeyer, J. (2005) Haircuts: estimating investor losses in sovereign debt restructurings, 1998-2005. IMF Working Paper 05-137. van Wijnbergen (1990) Cash/debt buy-backs and the insurance value of reserves. Journal of International Economics 29, 123-131. Wright, M.L.J. (2002) Reputations and sovereign debt. Mimeo. Stanford University.
URI:	http://wrap.warwick.ac.uk/id/eprint/1452

Request changes to a record

Actions (login required)

View Item