International Debt and the Price of Domestic Assets
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
This paper examines the behavior of indebtedness, consumption, and asset prices in a small open economy in which the foreign real interest rate depends not only on an exogenous world interest rate and on indebtedness, but also on the value of the capital stock, viewed as an implicit “collateral,” and hence on the price of capital. The paper finds that the collateral effect magnifies the intensity of shocks to the economy and the duration of their impact. The collateral effect also generates additional distortions that could lead to overborrowing. The paper discusses the policy responses to these distortions.
Series:
Working Paper No. 2000/177
Subject:
Asset prices Collateral Consumption Debt burden External debt Financial institutions National accounts Prices Revenue administration Tax arrears management
English
Publication Date:
October 1, 2000
ISBN/ISSN:
9781451858860/1018-5941
Stock No:
WPIEA1772000
Pages:
29
Please address any questions about this title to publications@imf.org