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Article Dans Une Revue Review of Economic Dynamics Année : 2017

Borrowing in Excess of Natural Ability to Repay

Résumé

The paper aims at improving our understanding of self-enforcing debt in competitive dynamic economies with lack of commitment when default induces a permanent loss of access to international credit markets. We show, by means of examples, that a sovereign's creditworthiness is not necessarily limited by the ability to repay out of its future resources. Self-enforcing debt grows at the same rate as interest rates. If a sovereign's endowment growth rates are lower than interest rates, then debt limits eventually exceed the natural debt limits. This implies that there is asymptotic borrowing in present value terms. We show that this can be compatible with lending incentives when credible borrowers facilitate inter-temporal exchange, acting as pass-through intermediaries that alleviate the lenders' credit restrictions.
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Dates et versions

hal-01249202 , version 1 (30-12-2015)

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Victor Filipe Martins da Rocha, Yiannis Vailakis. Borrowing in Excess of Natural Ability to Repay. Review of Economic Dynamics, 2017, 23, pp.42-59. ⟨10.1016/j.red.2016.09.006⟩. ⟨hal-01249202⟩
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