Trade Credit, International Reserves and Sovereign Debt

Emanuel Kohlscheen and O’Connell, S. A.
Additional contact information
O’Connell, S. A.: Department of Economics, Swarthmore College
Authors registered in the RePEc Author Service: Stephen A. O'Connell (soconne1@swarthmore.edu)

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We present a unified model of sovereign debt, trade credit and international reserves. Our model shows that access to short-term trade credit and gross international reserves critically affect the outcome of sovereign debt renegotiations. Whereas competitive banks do optimally lend for the accumulation of borrowed reserves that strengthen the bargaining position of borrowers, they also have incentives to restrict the supply of short-term trade credit during renegotiations. We first show that they effectively do so and then derive propositions that : I) establish the size of sovereign debt haircuts as a function of economic fundamentals and preferences ; II) predict that defaults occur during recessions rather than booms, contrary to reputation based models ; III) provide a rationale for holding costly borrowed reserves and, IV) show that the stock of borrowed international reserves tends to increase when global interest rates are low.

JEL-codes: F30 F34 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2007
New Economics Papers: this item is included in nep-int
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/w ... s/2008/twerp_833.pdf

Related works:
Working Paper: Trade Credit, International Reserves and Sovereign Debt (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:833

Access Statistics for this paper

More papers in The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash (m.j.nash@warwick.ac.uk).