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Sources of Debt Accumulation in a Small Open Economy
Author:
Mr. Abdelhak S Senhadji
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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 146
Language:
English
Publication Date:
01 Oct 1997
DOI:
https://doi.org/10.5089/9781451856606.001
ISBN:
9781451856606
ISSN:
1018-5941
Pages:
26
Keywords:
WP; interest rate; Debt Accumulation; Stochastic Dynamic General Equilibrium Model; External Shocks; Incomplete Information; Developing Countries; world interest rate; terms of trade shock; business cycle; open economy; debt level; Terms of trade; Real interest rates; Exports; Imports
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper analyzes the borrowing behavior of a small open economy of a developing country that relies heavily on imports for its capital formation and faces an upward-sloping supply function of foreign loans. Decision makers face uncertainty about the longevity of external shocks. That uncertainty generates forecast errors that lead to substantial debt accumulation. It is found that the assumption of an upward-sloping supply function of foreign loans, which is a more realistic formulation for developing countries than the usual perfect elasticity, offers an alternative to the Uzawa-type utility function for analyzing asset accumulation in the small open economy framework.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund