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Uncertainty and the Disappearance of International Credit


  • Joshua Aizenman
  • Nancy P. Marion


We show that increased uncertainty about the size of an emerging market's external debt has a nonlinear and potentially large adverse effect on the supply of international credit offered to them. We also show that if international creditors are first- order risk averse, attaching greater weight to utility derived from bad outcomes than from good ones, a moderate increase in uncertainty about debt overhang or about other relevant factors affecting repayment prospects-- can cause the supply of credit to dry up completely. We therefore offer one possible explanation for why emerging markets may find themselves suddenly cut off from international capital markets.

Suggested Citation

  • Joshua Aizenman & Nancy P. Marion, 1999. "Uncertainty and the Disappearance of International Credit," NBER Working Papers 7389, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7389
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    References listed on IDEAS

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    Cited by:

    1. Pierre-Richard Agénor & Joshua Aizenman, 2005. "Financial sector inefficiencies and the debt Laffer curve," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 1-13.
    2. Joshua Aizenman, 1999. "Capital Controls and Financial Crises," NBER Working Papers 7398, National Bureau of Economic Research, Inc.
    3. Theo S Eicher & Uwe Walz & Stephen Turnovsky, 2000. "Financial Liberalization and Capital Flow Reversals:," Discussion Papers in Economics at the University of Washington 0003, Department of Economics at the University of Washington.
    4. Marion, Nancy P., 2000. "Optimal currency crises A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 231-238, December.
    5. Serhan Cevik & Richard Harris & Fatih Yilmaz, 2015. "Soft Power and Exchange Rate Volatility," IMF Working Papers 15/63, International Monetary Fund.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance

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