Working Papers - details - WEF0004
WEF0004
A Sovereign Debt Model with Trade Credit and Reserves
Emanuel Kohlscheen (Co-researcher with Lei Zhang, University of Warwick) & Stephen A O'Connell
March 2006
View this working paper
Abstract
This paper analyses sovereign debt in an economy in which the availability of short-term trade credit reduces international trade transaction costs. The model highlights the distinction between gross and net international reserve positions. Borrowed reserves provide net wealth and liquidity services during a negotiation, as long as they are are not fully attachable by creditors. Moreover, reserves strengthen the bargaining position of a country by shielding it from a cut-off from short-term trade credits thereby diminishing its degree of impatience to conclude a negotiation. We show that competitive banks do lend for the accumulation of borrowed reserves, which provide partial insurance.
View Kohlsheen's Project details
Back to Working Papers Index
