A Sovereign Debt Model with Trade Credit and Reserves

Emanuel Kohlscheen and S. A. O'Connell

No 269636, Economic Research Papers from University of Warwick - Department of Economics

Abstract: This paper analyzes 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 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.

Keywords: Agricultural and Food Policy; Financial Economics (search for similar items in EconPapers)
Pages: 58
Date: 2006
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: A Sovereign Debt Model with Trade Credit and Reserves (2006)
Working Paper: A Sovereign Debt Model with Trade Credit and Reserves (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269636

DOI: 10.22004/ag.econ.269636

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