Evaluating debt repurchases What are the alternatives to investment?
AbstractIn this paper a general model of debt repurchases is built which reconciles most of the points raised in the literature on debt buybacks. It is shown that results previously found in the literature can be obtained from this general model and are strongly dependant on assumptions made on its parameters. The condition that determines whether or not buybacks are an attractive solution from the point of the debtor nations is derived. Additionally it is shown that if there are other assets safer than investment, a debt buyback will always lead to an increase in investment and a reduction in the holdings of such other assets. This result holds independently of the source of the resources used for the buyback, unlike previous suggestions. With a buyback out of current resources, optimal reserves levels fall by more than what is used for the buyback, releasing extra resources for investment purposes, while current consumption does not fall. (JEL F34)
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 40 (1996)
Issue (Month): 3-4 (May)
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Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- Costa-Cabral, Célia, . "Evaluating debt repurchases: what are the alternative to investment?," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2906, Universidad Carlos III de Madrid.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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