Working Paper: NBER ID: w7531
Authors: Michael P. Dooley
Abstract: Recent financial crises in emerging markets have been followed by temporary but substantial losses in output. This paper explores the possibility that threats of such losses are the dominant incentive for repayment of international debt. In this environment private debtors and creditors have strong incentives to design international contracts so that renegotiation is costly. Such contracts generate dead weight losses and proposals for reform of the international monetary system that modify explicit and implicit contractual arrangements and can be welfare improving under special circumstances. However, such proposals might also weaken the incentives that make private international debt possible.
Keywords: No keywords provided
JEL Codes: F15; F2; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Threat of substantial output losses (E23) | Sovereign debt repayment (H63) |
| Threat of substantial output losses (E23) | Deadweight losses (H21) |
| Deadweight losses (H21) | Sovereign debt repayment (H63) |
| IMF policies (F38) | Sanctioned default (G33) |