Threshold effects in international lending

Mark Spiegel

No 394, Policy Research Working Paper Series from The World Bank

Abstract: The author's dynamic model of international borrowing subject to credit constraint was developed for an economy with increasing returns to physical capital. Increases in the capital stock within the nonconvex range increase debtor borrowing opportunities. Conversely, a temporary liquidity shock may permanently lower the economy's growth path. Introducing aggregate nonconvexities also has different implications for policy on debt overhangs. In particular, the model allows for rational relending by creditors. It also predicts that new money ( or interest capitalization ) is in the interest of creditors and will be part of a debt restructuring strategy - as it was recently for Mexico and the Philippines.

Keywords: Housing Finance; Environmental Economics&Policies; Economic Growth; Economic Theory&Research; Banks&Banking Reform (search for similar items in EconPapers)
Date: 1990-04-30
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Related works:
Journal Article: Threshold effects in international lending (1995)
Working Paper: Threshold Effects in International Lending (1991)
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