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Private international debt with risk of repudiation

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  • Karsten Jeske
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    Abstract

    The risk of repudiation plays a central role in the size and nature of international capital flows. In this paper the author addresses the question of whether, in a world of international capital flows with risk of default, strategic externalities provide a rationale for regulation of international borrowing. The author models centralized arrangements of international debt in which only governments borrow and lend internationally and decentralized arrangements in which individuals have access to international markets. The author shows that a centralized setup allows more international risk sharing than a decentralized setup.

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    File URL: http://www.frbatlanta.org/filelegacydocs/wp0116a.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2001-16.

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    Date of creation: 2005
    Date of revision:
    Handle: RePEc:fip:fedawp:2001-16

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    Keywords: Debt ; Risk ; Capital movements ; International finance;

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    References

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    1. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
    2. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine.
    3. Harold L. Cole & Patrick J. Kehoe, 1996. "Reputation spillover across relationships: reviving reputation models of debt," Staff Report 209, Federal Reserve Bank of Minneapolis.
    4. Patrick J. Kehoe & Fabrizio Perri, 2000. "International business cycles with endogenous incomplete markets," Staff Report 265, Federal Reserve Bank of Minneapolis.
    5. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
    6. Cole, Harold L. & English, William B., 1992. "Two-sided expropriation and international equity contracts," Journal of International Economics, Elsevier, vol. 33(1-2), pages 77-104, August.
    7. Fernando Alvarez & Urban J Jermann, 2010. "Asset Pricing When Risk Sharing is Limited by Default," Levine's Working Paper Archive 1898, David K. Levine.
    8. Jonathan Eaton & Mark Gersovitz, 1984. "A Theory of Expropriation and Deviations From Perfect Capital Mobility," NBER Working Papers 0972, National Bureau of Economic Research, Inc.
    9. Herschel I. Grossman & John B. Van Huyck, 1989. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," NBER Working Papers 1673, National Bureau of Economic Research, Inc.
    10. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
    11. Andrew Atkeson, 2010. "International lending with moral hazard and risk of repudiation," Levine's Working Paper Archive 200, David K. Levine.
    12. Giorgia Giovannetti & Albert Marcet & Ramon Marimon, 1993. "Growth, capital flows and enforcement constaints: The case of Africa," Economics Working Papers 22, Department of Economics and Business, Universitat Pompeu Fabra.
    13. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
    14. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
    15. Bebchuk, Lucian Arye & Guzman, Andrew T, 1999. "An Economic Analysis of Transnational Bankruptcies," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 775-808, October.
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    Cited by:
    1. Patrick J. Kehoe & Fabrizio Perri, 2002. "Competitive equilibria with limited enforcement," Working Papers 621, Federal Reserve Bank of Minneapolis.
    2. Mark L. J. Wright, 2004. "Private capital flows, capital controls, and default risk," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    3. Jaime Guajardo, 2004. "Financial Frictions and Business Cycles in Developing Countries," Econometric Society 2004 Latin American Meetings 307, Econometric Society.

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