Developing-country resource extraction with asymmetric information and sovereign debt: a theoretical analysis

1997 ◽  
Vol 2 (3) ◽  
pp. 265-289
Author(s):  
JON STRAND
Keyword(s):  
Growth Rate ◽  
Interest Rate ◽  
Asymmetric Information ◽  
Developing Country ◽  
Sovereign Debt ◽  
Resource Extraction ◽  
Probability Of Default ◽  
Rapid Extraction ◽  
The Interest Rate ◽  
Period Model

We consider a two-period model of an indebted developing country endowed with a natural resource whose extraction causes negative global externalities, where the country may borrow in period one and there is asymmetric information about its willingness to service its loans. We show that when the resource is large, the interest rate on new borrowing equals the resource growth rate. A greater initial debt level then leads to reduced new borrowing and more rapid extraction. An outside 'donor' may affect the resource extraction of the country. Donor schemes that tie debt reduction to postponing or abstaining from extraction of the resource are more powerful than non-conditional schemes in reducing the extraction rate for governments that actually repay, but may in some cases lead to a greater probability of default through increased debt. While conditional schemes generally are potentially Pareto-superior to non-conditional ones, the welfare of the borrowing country is higher with non-conditional schemes.

scholarly journals Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya

2016 ◽  
Vol 1 (2) ◽  
pp. 81-113
Author(s):  
Nderitu Kingori
Keyword(s):  
Growth Rate ◽  
Interest Rate ◽  
Market Structure ◽  
Interest Rate Risk ◽  
Risk Exposure ◽  
Economic Shocks ◽  
Macroeconomic Shocks ◽  
Net Interest Margin ◽  
The Interest Rate ◽  
Loan Growth

This paper investigates the effect of changing market structure and macroeconomic shocks on the borrowing and lending risk exposure of Kenyan commercial banks using a GMM estimation approach. Borrowing risk exposure was found not to be persistent, being mainly affected by the degree of concentration and external economic shocks. Interestingly, the results also suggest that changes in the short-term interest rate do not affect the net interest margin, which may imply that bank deposit and lending rates are rigid and that the interest rate channel may be ineffective. The lending risk exposure was found to be persistent, and it was affected by the degree of concentration, internal economic shocks, and external economic shocks. The positive relationship between degree of concentration as well as borrowing and lending risk exposure supports the concentration-fragility view, as the declining franchise value did not lower incentives for making good loans during the study period where the degree of concentration was on a downward trend. Further analysis of the factors contributing to the persistence of lending risk exposure using a PVAR model found that the banks' loan growth rate and the market interest rate were key determinants. The effect of the loan growth rate was about double the effect of interest rate risk, implying that risk taking by some of the medium-sized and small banks is the key determinant of the persistence of lending risk exposure.

scholarly journals Rethinking Solidarity in the EU, from fact to social contract

2011 ◽  
Vol 7 (2) ◽  
pp. 169-172 ◽  
Author(s):  
WTE ◽  
DN
Keyword(s):  
Interest Rate ◽  
Social Contract ◽  
Sovereign Debt ◽  
Market Forces ◽  
Downward Spiral ◽  
The Interest Rate ◽  
The Eu

At the time of writing of this editorial, in the high summer of 2011, the ‘market forces” are meeting up for an attack on the first major member of the Eurozone, Italy. It begins, as has now become familiar, with a rise in the rate of interest that a country has to pay for money to service its sovereign debt. Above a critical percentage, around seven in this case, the servicing of its debt, compounded with the loss of tax income due to a slackening economy, will send the country into the downward spiral of ever-increasing debt. The perspective of a possible default in turn will send the interest rate further upward, pushing the country into a more certain default, and so on. It is a self-fulfilling perspective.

Three Ways to Determine the Discount Rate

2012 ◽  
Author(s):  
Christian Gollier
Keyword(s):  
Interest Rate ◽  
Time Preferences ◽  
Classical Economics ◽  
Investment Opportunities ◽  
The Interest Rate ◽  
Period Model ◽  
Consumption Saving ◽  
Competitive Economy

This chapter presents the simple two-period model that is used in classical economics textbooks to examine the problem of consumption, saving, and investment in a competitive economy. This model is a reminder of the key role of the interest rate for the determination of economic growth. Its equilibrium level balances the demand and the supply of liquidity, which are themselves characterized by time preferences and investment opportunities. From a simple arbitrage argument, any new investment opportunity in the economy should be evaluated by using the interest rate as the rate at which the future benefits of the project should be discounted.

scholarly journals Analisis Efektivitas Kebijakan Moneter dan Kebijakan Fiskal terhadap Produk Domestik Bruto Indonesia

2018 ◽  
Vol 7 (2) ◽  
pp. 194-202
Author(s):  
Ridho Windi Atmojo
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Empirical Data ◽  
Least Square ◽  
Two Stage ◽  
Economic Growth Rate ◽  
The Interest Rate

Dari data-data empiris tingkat pertumbuhan ekonomi Indonesia berdasarkan pada PDB  banyak mengalami penurunan. Untuk meningkatkan PDB Indonesia, maka dilakukan penelitian efektiv mana kebijakan moneter atau fiskal dalam mempengaruhi PDB Indonesia. Penelitian ini memakai model IS-LM dengan menggunakan metode Two-Stage Least Square (TSLS) untuk mengestimasi variabel yang ada dalam penelitian. Hasil penelitian menunjukan bahwa nilai PDB Indonesia dengan menggunakan IS-LM sebesar 2034769.68 miliar dan tingkat bunga berada di -8.78 persen. multiplier kebijakan fiskal sebesar 0.63 dan nilai multiplier moneter sebesar 1.72.  From the empirical data, Indonesia's economic growth rate based on GDP has decreased a lot. To increase Indonesia's GDP, an effecve research is conducted where the monetary or fiscal policy in influencing Indonesia's GDP. This research uses IS-LM model by using Two-Stage Least Square (TSLS) method to estimate the variables in the research. The results showed that the value of Indonesia's GDP using IS-LM amounted to 2034769.68 billion and the interest rate was at -8.78 percent. fiscal policy multiplier of 0.63 and a monetary multiplier value of 1.72.

Comments on debt dynamics

2003 ◽  
Vol 53 (1) ◽  
pp. 29-43
Author(s):  
T. Mellár
Keyword(s):  
Growth Rate ◽  
Economic Policy ◽  
Interest Rate ◽  
Public Debt ◽  
Budget Deficit ◽  
Stable Equilibrium ◽  
Nonlinear Models ◽  
The Third ◽  
Debt Dynamics ◽  
The Interest Rate

The present paper deals with the accumulation of public debt based on different kinds of nonlinear models. The same problem is analysed here in three different models. In the first model difference between growth rate and interest rate depends lineary on the debt/GDP ratio and the budget deficit. In the second model version this connection was non-linear, so two kinds of economic policy could be applied. In the third version the growth rate as well as the interest rate are in close connection with the debt/GDP ratio, in this case a stable equilibrium or a saddle path could be shown up.

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