Can Debt Crises Be Self-Fulfilling?

Marcos Chamon ()

No 2004/099, IMF Working Papers from International Monetary Fund

Abstract: Several papers argue that debt crises can be the result of self-fulfilling expectations that no one will lend to a country. I show this type of coordination failure can be eliminated by a combination of state-contingent securities and a mechanism that allows investors to promise to lend only if enough other investors do so as well. This suggests that runs on the debt of a single borrower (such as the government) can be eliminated, and that self-fulfilling features are more plausible when articulated in a context in which externalities among many decentralized borrowers allow for economy-wide debt runs to occur.

Keywords: WP; short-term debt; liquidity crisis; individual investor (search for similar items in EconPapers)
Pages: 21
Date: 2004-06-01
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Citations: View citations in EconPapers (5)

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Journal Article: Can debt crises be self-fulfilling? (2007)
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