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Country Risk, Incomplete Information and Taxes on International Borrowing

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Author Info
Aizenman, Joshua

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Abstract

This paper identifies conditions under which the presence of country risk induces a distortion. Optimal domestic and global policies, in the presence of country risk, call for borrowing taxes. If the level of external borrowing is substantial, then the optimal policy is implemented in a system where the private sector cannot borrow abroad directly. Instead, the central bank borrows externally, auctioning the available credit domestically at a demand-determined price. If penalty enforcement costs are positive, global welfare considerations call for an optimal borrowing tax at a rate higher than the optimal borrowing tax from the nationalistic point of view. Copyright 1989 by Royal Economic Society.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 99 (1989)
Issue (Month): 394 (March)
Pages: 147-61
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Handle: RePEc:ecj:econjl:v:99:y:1989:i:394:p:147-61

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  1. Joshua Aizenman, 1986. "Country Risk and Incentives Schemes," NBER Working Papers 2031, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Joshua Aizenman, 1989. "Country Risk and Contingencies," NBER Working Papers 2236, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Joshua Aizenman, 2002. "Financial Opening: Evidence and Policy Options," NBER Working Papers 8900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Ricardo J. Caballero & Arvind Krishnamurthy, 1998. "Emerging Market Crises: An Asset Markets Perspective," NBER Working Papers 6843, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Joshua Aizenman, 1991. "Trade Dependency, Bargaining and External Debt," NBER Working Papers 2726, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Joshua Aizenman, 1991. "External Debt, Planning Horizon and Distorted Credit Markets," NBER Working Papers 2662, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Joshua Aizenman, 1990. "Investment, Openness, and Country Risk," NBER Working Papers 2410, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Joshua Aizenman & Nancy Marion, 1999. "Uncertainty and the disappearance of international credit," Proceedings, Federal Reserve Bank of San Francisco, issue Sep. [Downloadable!]
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  9. Joshua Aizenman & Stephen J. Turnovsky, 2002. "Reserve Requirements on Sovereign Debt in the Presence of Moral Hazard -- on Debtors or Creditors?," Economic Journal, Royal Economic Society, vol. 112(476), pages 107-132, January. [Downloadable!] (restricted)
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  10. Michael Kumhof & Stijn van Nieuwerburgh, 2007. "Monetary Policy in an Equilibrium Portfolio Balance Model," IMF Working Papers 07/72, International Monetary Fund. [Downloadable!]
    Other versions:
  11. Hung-ju Chen; Hsiao-tang Hsu, 2004. "The Role of Firm Size in Controlling Output Volatility during the Asian Financial Crisis," Econometric Society 2004 North American Summer Meetings 11, Econometric Society. [Downloadable!]
  12. Joshua Aizenman & Nancy Marion, 1999. "Reserve Uncertainty and the Supply of International Credit," NBER Working Papers 7202, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Ricardo J. Caballero & Arvind Krishnamurthy, 2001. "International Liquidity Illusion: On the Risks of Sterilization," NBER Working Papers 8141, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Pierre-Richard Agenor & Joshua Aizenman, 1994. "Macroeconomic Adjustment with Segmented Labor Markets," NBER Working Papers 4769, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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