We explore interactions of firms in a pre-trading(fixed network of lending/borrowing) period whereby firms set fixed lending rates given quadratic loan management costs. Equilibrium rates charged each creditor firm is derived from linear reaction function isomorphic to private provision of...

We propose a small open economy model where agents borrow internationally and invest in liquid foreign assets to insure against liquidity shocks, which temporarily shut out the economy of short-term credit markets. Due to the presence of a pecuniary externality individual agents borrow too much...