Reserve Uncertainty and the Supply of International Credit

Posted: 10 Jan 2002

See all articles by Joshua Aizenman

Joshua Aizenman

National Bureau of Economic Research (NBER)

Nancy Peregrim Marion

Dartmouth College - Department of Economics

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Abstract

This paper shows that uncertainty about an emerging market's international reserves can affect the willingness of foreign investors to supply international credits. We illustrate the relevance of this concern for South Korea. Uncertainty has asymmetric effects. When the expected reserve position of an emerging market is large relative to the potential bailout in bad states of nature, reserve volatility does not matter. However, the same amount of reserve volatility can cause a large reduction in the supply of international credit if the private sector seriously downgrades its priors about repayment possibilities or becomes more pessimistic about the emerging market's reserve position.

Keywords: Bailouts, international credits, reserve volatility

JEL Classification: F2, F3

Suggested Citation

Aizenman, Joshua and Marion, Nancy P., Reserve Uncertainty and the Supply of International Credit. Available at SSRN: https://ssrn.com/abstract=296265

Joshua Aizenman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nancy P. Marion

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
(603) 646-2511 (Phone)

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