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International Borrowing Without Commitment and Informational Lags: Choice under Uncertainty

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  • Giorgio Fabbri

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)

Abstract

A series of recent studies in economic growth theory have considered a class of models of international borrowing where, in the absence of a perfect investment commitment , the borrowing constraint depends on the historical performances of the country. Thus, a better level of past economic activity gives a higher reputation, thereby increasing the possibility of accessing the international credit market. This note considers this problem in a stochastic setting based on the volatility of the internal net capital. We study how the optimal consumption level and the maximal expected welfare depend on the combined influence of the trajectory of past economic variables and the volatile environment. In particular, we show how the strength of the history effect and the relative weight of the historical performance depend on the degree of risk.

Suggested Citation

  • Giorgio Fabbri, 2015. "International Borrowing Without Commitment and Informational Lags: Choice under Uncertainty," Working Papers halshs-01191796, HAL.
  • Handle: RePEc:hal:wpaper:halshs-01191796
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01191796
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    Cited by:

    1. Giorgio Fabbri & Fausto Gozzi & Andrzej Swiech, 2017. "Stochastic Optimal Control in Infinite Dimensions - Dynamic Programming and HJB Equations," Post-Print hal-01505767, HAL.

    More about this item

    Keywords

    international borrowing; stochastic growth model; history effect; neutral stochastic differential equation;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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