Arellano, Cristina; Heathcote, Jonathan - In: Journal of Economic Theory 145 (2010) 3, pp. 944-973
How does a country's exchange rate regime impact its ability to borrow from abroad? We build a small open economy model in which the government responds to shocks by adjusting monetary policy and foreign borrowing. Sovereign borrowing is subject to endogenous limits, which ensure repayment when...