Dynamic of International Debt Overhang with two Lender Banks
This paper presents a dynamic formalization of the behavior of creditor banks in the presence of the secondary market for debts. We formulate the problem as an infinite horizon game with two banks as players where each bank decides in every period either to sell its loan exposure to the debtor country at the present secondary market price, or to wait and keep its exposure to the next period. We show that there exist three types of subgame perfect equilibria with the property called the time continuation. We consider the relationship between our equilibria and those of the Kaneko-Prokop (1991) one-period approach to the same problem and show that their one-period approach does not lose much of the dynamic nature of the problem. In every equilibrium, each bank waits in every period with high probability, and the probability is close to 1 when the interest rate is small. If the price function of debt is approximated by some homogeneous function for large values of debt, then the central equilibrium probability becomes stationary in the long run. The stationary probability is relatively high as long as the interest rate is low. These results are interpreted as a tendency for the problem of debt overhang to remain almost unchanged.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1991|
|Date of revision:|
|Contact details of provider:|| Postal: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:ner:tilbur:urn:nbn:nl:ui:12-155106 is not listed on IDEAS
- Sachs, J. & Huizinga, H.P., 1987.
"U.S. commercial banks and the developing-country debt crisis,"
Other publications TiSEM
ada14007-7229-4f6d-a016-f, Tilburg University, School of Economics and Management.
- Jeffrey Sachs & Harry Huizinga, 1987. "U.S. Commercial Banks and the Developing-Country Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 555-606.
- Jeffrey Sachs & Harry Huizinga, 1987. "U.S. Commercial Banks and the Developing Country Debt Crisis," NBER Working Papers 2455, National Bureau of Economic Research, Inc.
- Jeremy Bulow & Kenneth Rogoff, 1988. "The Buyback Boondoggle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 675-704.
- Mamoru Kaneko & Jacek Prokop, 1991.
"A Game Theoretical Approach to the International Debt Overhang,"
945, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Mamoru Kaneko & Jacek Prokop, 1993. "A game theoretical approach to the international debt overhang," Journal of Economics, Springer, vol. 58(1), pages 1-24, February.
When requesting a correction, please mention this item's handle: RePEc:att:wimass:946. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ailsenne Sumwalt)
If references are entirely missing, you can add them using this form.