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Uncertainty and the Disappearance of International Credit

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  • Joshua Aizenman
  • Nancy P. Marion

Abstract

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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    Cited by:

    1. Joshua Aizenman, 1999. "Capital Controls and Financial Crises," NBER Working Papers 7398, National Bureau of Economic Research, Inc.
    2. Serhan Cevik & Richard D. F. Harris & Fatih Yilmaz, 2017. "Soft power and exchange rate volatility," International Finance, Wiley Blackwell, vol. 20(3), pages 271-288, December.
    3. Marion, Nancy P., 2000. "Optimal currency crises A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 231-238, December.
    4. 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.
    5. Theo S Eicher & Uwe Walz & Stephen Turnovsky, 2000. "Financial Liberalization and Capital Flow Reversals:," Working Papers 0003, University of Washington, Department of Economics.
    6. Emmanuel Buabeng & Enock Kojo Ayesu & Opoku Adabor, 2019. "The Effect of Exchange Rate Fluctuation on the Performance of Manufacturing Firms: An Empirical Evidence from Ghana," Economics Literature, WERI-World Economic Research Institute, vol. 1(2), pages 133-147, December.

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    More about this item

    JEL classification:

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

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