Trade Credit, International Reserves and Sovereign Debt
AbstractWe present a unified model of sovereign debt, trade credit and international reserves. Our model shows that access to short-term trade credit and gross international reserves critically affect the outcome of sovereign debt renegotiations. Whereas competitive banks do optimally lend for the accumulation of borrowed reserves that strengthen the bargaining position of borrowers, they also have incentives to restrict the supply of short-term trade credit during renegotiations. We first show that they effectively do so and then derive propositions that : I) establish the size of sovereign debt haircuts as a function of economic fundamentals and preferences ; II) predict that defaults occur during recessions rather than booms, contrary to reputation based models ; III) provide a rationale for holding costly borrowed reserves and, IV) show that the stock of borrowed international reserves tends to increase when global interest rates are low.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 833.
Length: 50 pages
Date of creation: 2007
Date of revision:
Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Miller, Marcus & Thomas, Dania, 2006.
"Sovereign Debt Restructuring: the Judge, the Vultures and Creditor Rights,"
CEPR Discussion Papers, C.E.P.R. Discussion Papers
5710, C.E.P.R. Discussion Papers.
- Marcus Miller & Dania Thomas, 2007. "Sovereign Debt Restructuring: The Judge, the Vultures and Creditor Rights," The World Economy, Wiley Blackwell, vol. 30(10), pages 1491-1509, October.
- Miller, Marcus & Thomas, Dania, 2006. "Sovereign debt restructuring : the Judge, the vultures and creditor rights," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 757, University of Warwick, Department of Economics.
- Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2012.
"Sovereign Default, Domestic Banks, and Financial Institutions,"
462, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, American Finance Association, vol. 69(2), pages 819-866, 04.
- Nicola Gennaioli & Alberto Mart�n & Stefano Rossi, 2012. "Sovereign Default, Domestic Banks and Financial Institutions," Working Papers 622, Barcelona Graduate School of Economics.
- Gennaioli, Nicola & Martin, Alberto & Rossi, Stefano, 2010. "Sovereign Default, Domestic Banks and Financial Institutions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7955, C.E.P.R. Discussion Papers.
- Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2009. "Sovereign default, domestic banks and financial institutions," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1170, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2012.
- Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies," IMF Working Papers 09/29, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helen Neal).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.