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Implications for the Adjustment Process of International Asset Risks: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk

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  • Willem H. Buiter

Abstract

This paper analyzes the implications of international asset risks for the operation of the international adjustment process, with special emphasis on the scope for monetary policy. After a brief review of actual practice in the evaluation of country risk, the paper discusses a number of modifications in the standard theory of efficient international financial markets that are necessitated by the existence of country risk., For macroeconomic policy, the major implications are that domestic and foreign assets become imperfect substitutes and that world demand for domestic assets is likely to be less than perfectly elastic, even in the "small country" case, Even under a fixed exchange rate, a measure of domestic control over domestic interest rates therefore exists.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0516.

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Date of creation: Jul 1980
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Publication status: published as Buiter, W.H. "Implications for the Adjustment Process of International Asset Risk: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk ." Internationalization of Financial Markets & National Economic Policy, ed . by R.G. Hawkinsm R.M. Levich & C.G. Wihlberg, JAI Press, 1983, pp. 69-102
Handle: RePEc:nbr:nberwo:0516

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  1. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  2. Hellwig, Martin F, 1977. "A Model of Borrowing and Lending with Bankruptcy," Econometrica, Econometric Society, vol. 45(8), pages 1879-1906, November.
  3. Feder, Gershon & Just, Richard E., 1977. "A study of debt servicing capacity applying logit analysis," Journal of Development Economics, Elsevier, vol. 4(1), pages 25-38, February.
  4. Nicholas Sargen, 1977. "Economic indicators and country risk appraisal," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 19-35.
  5. Frank, Charles Jr. & Cline, William R., 1971. "Measurement of debt servicing capacity: An application of discriminant analysis," Journal of International Economics, Elsevier, vol. 1(3), pages 327-344, August.
  6. Frankel, Jeffrey A., 1979. "The diversifiability of exchange risk," Journal of International Economics, Elsevier, vol. 9(3), pages 379-393, August.
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Cited by:
  1. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.

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