On Overborrowing / Martin Uribe.

Format:

Book

Author/Creator:

Uribe, Martin.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11913.

NBER working paper series no. w11913

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

This paper characterizes the equilibrium dynamics in an economy facing an aggregate debt ceiling. This borrowing limit is intended to capture an environment in which foreign investors base their lending decisions predominantly upon macro indicators. Individual agents do not internalize the borrowing constraint. Instead, a country interest-rate premium emerges to clear the financial market. The implied equilibrium dynamics are compared to those arising from a model in which the debt ceiling is imposed at the level of each individual agent. The central finding of the paper is that the economy with the aggregate borrowing limit does not generate higher levels of debt than the economy with the individual borrowing limit. That is, there is no overborrowing in equilibrium.

Notes:

Print version record

January 2006.