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Massachusetts Institute of Technology and UFSIA. For helpful comments and discussions, I am indebted to Klaas Baks, Monica Baumgarten de Bolle, Torbjorn Becker, Nada Choueiri, Xavier Debrun, Rupa Dutta-Gupta, Robert Flood, Charles Goodhart, Florence Jaumotte, Nobu Kiyotaki, Subir Lall, Eric Le Borgne, Paul Masson, Don Mathieson, Brieuc Monfort, Jef Plasmans, Ken Rogoff, Jorge Roldos and Amadou Sy. I gratefully acknowledge the Emerging Markets Studies Division at the IMF Research Department, where this project was started. I also thank the Fund for Scientific Research (Flanders, Belgium) for financial support. Correspondence: Department of Economics, MIT, 50 Memorial Drive, Cambridge, MA 02142-1347, USA. Fax: +1-617-253-1330
Alternative state-contingent contracts where the degree of collateralization does depend on the asset price result in exactly the same level of welfare.