Logo
Munich Personal RePEc Archive

Private Debt with Default Risk within and across Border

Gao, Xiang (2009): Private Debt with Default Risk within and across Border.

Warning
There is a more recent version of this item available.
[thumbnail of MPRA_paper_18377.pdf]
Preview
PDF
MPRA_paper_18377.pdf

Download (301kB) | Preview

Abstract

Following Jeske's (2006) decentralized international risk sharing arrangement where residents have access to international capital markets, this paper studies the presence of resident default risk on borrowing happened between domestic agents, in addition to default risk on private debt contracts across border. The paper shows that, without the assumption of perfect domestic contract enforcement, more international risk sharing and higher welfare can be supported. Moreover, the domestic interest rate equals to the highest marginal rate of substitution in countries that are participation constrained in international financial markets. This asset pricing result overturns the well established argument that interest rate should be the lowest to induce repayment in closed economy models with domestic credit crisis.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.