Theoretical Issues in International Borrowing

Sachs, Jeffrey D.

The current crisis in international lending points up a lesson re-learned several times in the past 150 years: the international loan markets function very differently from the textbook model of competitive lending. This paper discusses various extensions of the basic model. First, we amend the textbook model to show how limitations on a government's taxing authority may greatly affect its optimal borrowing strategy. Second, we explore the implications of adebtor country's option to repudiate debt. Third, we show that efficient lending may require collective actions by bank syndicates, and that a breakdown in collective action can result in serious inefficiencies and even financial panics.


More About This Work

Academic Units
Earth Institute
National Bureau of Economic Research
NBER Working Paper, 1189
Published Here
September 29, 2009


Prepared for the "Seminario Sobre la Economica Mexicana: Situacion Actualy Perspectivas Macroeconomicas," El Colegio de Mexico, August 1983.