A Sovereign Debt Model with Trade Credit and Reserves

Emanuel Kohlscheen and Stephen O'Connell ()

The Warwick Economics Research Paper Series (TWERPS) 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

JEL-codes: F30 F34 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2006
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (12)

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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:wrk:warwec:743

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