Eicher, Theo S.; Schubert, Stefan F.; Turnovsky, Stephen J. - In: Journal of International Money and Finance 27 (2008) 6, pp. 876-896
By specifying borrowing costs to increase with the debt to equity ratio we generate procyclical debt flows in response to terms of trade shocks, consistent with empirical evidence. Since procyclical capital flows attract unsustainably large capital inflows during favorable shocks and force...