International Debt and the Price of Domestic Assets

29 Pages Posted: 3 Feb 2006

See all articles by Leonardo Auernheimer

Leonardo Auernheimer

Texas A&M University - Department of Economics

Roberto Garcia-Saltos

International Monetary Fund (IMF)

Date Written: October 2000

Abstract

This paper examines the behavior of indebtedness, consumption, and asset prices in a small open economy in which the foreign real interest rate depends not only on an exogenous world interest rate and on indebtedness, but also on the value of the capital stock, viewed as an implicit "collateral," and hence on the price of capital. The paper finds that the collateral effect magnifies the intensity of shocks to the economy and the duration of their impact. The collateral effect also generates additional distortions that could lead to overborrowing. The paper discusses the policy responses to these distortions.

Keywords: Collateral Asset Prices International Debt Financial Accelerator

JEL Classification: E32 F34 G15

Suggested Citation

Auernheimer, Leonardo and Garcia-Saltos, Roberto, International Debt and the Price of Domestic Assets (October 2000). IMF Working Paper, Vol. , pp. 1-29, 2000. Available at SSRN: https://ssrn.com/abstract=880237

Leonardo Auernheimer (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

Roberto Garcia-Saltos

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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