Borrowing in excess of natural ability to repay

Resumo

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. (C) 2016 Elsevier Inc. All rights reserved.

Ficha do documento

Tipo

Artigo científico

Ano

2017

Instituição

Academic Press Inc Elsevier Science

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.red.2016.09.006

Identificador

oai:repositorio.fgv.br:10438/23709

Temas

Economia

Palavras-chave

Lack of commitmentSelf-enforcing debtNatural debt limitEconomiaEmpréstimosPagamento