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


  • Willem H. Buiter


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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  • Willem H. Buiter, 1980. "Implications for the Adjustment Process of International Asset Risks: Exchange Controls, Intervention and Policy Risk, and Sovereign Risk," NBER Working Papers 0516, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0516
    Note: ITI IFM

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    References listed on IDEAS

    1. Hellwig, Martin F, 1977. "A Model of Borrowing and Lending with Bankruptcy," Econometrica, Econometric Society, vol. 45(8), pages 1879-1906, November.
    2. Nicholas Sargen, 1977. "Economic indicators and country risk appraisal," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 19-35.
    3. Frankel, Jeffrey A., 1979. "The diversifiability of exchange risk," Journal of International Economics, Elsevier, vol. 9(3), pages 379-393, August.
    4. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 651-666.
    5. 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.
    6. 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.
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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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