Abstract
Aizenman suggests that highly indebted countries' (HICs') credit market policies should aim at increasing the degree of trade openness, since in the social optimum openness is larger than in the competitive market outcome. In this paper I show that when it is costly for creditors to impose sanctions on a defaulting country, there is a penalty structure alternative to Aizenman's which will be preferred by creditors. Aizenman's results on debtor's optimal openness and credit market policies may then be reversed.
Original language | English |
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Pages (from-to) | 803-811 |
Number of pages | 9 |
Journal | Journal of International Money and Finance |
Volume | 17 |
Issue number | 5 |
DOIs | |
Publication status | Published - 1 Oct 1998 |
Keywords
- Credit market policies
- Default penalties
- G1
- Trade openess