DP2520 Debt Maturity and the Global Financial Architecture
|Publication Date:||August 2000|
|Keyword(s):||Capital Controls, Debt Maturity, International Debt, Lending In Last Resort, Liquidity Crises|
|JEL(s):||F32, F33, F34|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2520|
The paper starts from the premise that the debate on the ?new architecture? of the international financial system should be based on a theory that endogenizes the structure of countries' external liabilities. I present a model in which the maturity of a country's external sovereign debt is the solution to an incentives problem, which may lead to reliance on short-term debt and vulnerability to runs. I study, in the context of this model, the welfare effects of an international lender of last resort, measures aimed at coordinating creditors in crises, and a tax on short-term capital flows. These measures may increase or decrease global welfare, and always leave it strictly below the first-best level.