Premium
Developing countries' borrowing in the international financial market with an uncertain credit ceiling?
Author(s) -
Isgut Alberto E.
Publication year - 2001
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.153
Subject(s) - ceiling (cloud) , economics , current account , debt , monetary economics , bond market , financial market , investment (military) , consumption (sociology) , macroeconomics , finance , exchange rate , social science , physics , sociology , politics , meteorology , law , political science
In the sovereign debt literature of the 1980s, countries formulated optimal borrowing plans subject to a credit ceiling imposed by their lenders. This paper analyzes the case where the credit ceiling is not known with certainty. The baseline deterministic model shows that consumption, investment and the current account deficit depend positively on the credit ceiling, implying more optimistic expectations about the country's future access to external financing led to larger current account deficits today. An extension of the model shows that when the country recognizes the uncertainty about future access to borrowing, optimal current account deficits are more moderate. Copyright © 2001 John Wiley & Sons, Ltd.