Uncertainty and the disappearance of international credit
AbstractWe show that increased uncertainty about the size of an emerging market's external debt has a nonlinear and potentially large adverse effect on the supply of international credit offered to them. We also show that if international creditors are first- order risk averse, attaching greater weight to utility derived from bad outcomes than from good ones, a moderate increase in uncertainty about debt overhang or about other relevant factors affecting repayment prospects-- can cause the supply of credit to dry up completely. We therefore offer one possible explanation for why emerging markets may find themselves suddenly cut off from international capital markets.
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Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal Proceedings.
Volume (Year): (1999)
Issue (Month): Sep ()
Other versions of this item:
- Joshua Aizenman & Nancy P. Marion, 1999. "Uncertainty and the Disappearance of International Credit," NBER Working Papers 7389, National Bureau of Economic Research, Inc.
- F2 - International Economics - - International Factor Movements and International Business
- F3 - International Economics - - International Finance
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