The author's dynamic model of international borrowing subject to credit constraint was developed for an economy with increasing returns to physical capital. Increases in the capital stock within the nonconvex range increase debtor borrowing opportunities. Conversely, a temporary liquidity shock...

There is always some price that is low enough so that a debtor country gains by buying back some of its debts. Similarly, there is always some price that is high enough so that creditors gain by selling their debt claims. What is needed is a mechanism that allows trades to take place at some...

This paper reviews the Japanese experience with “put guarantees” recently offered in the sale of several failed banks. These guarantees, meant to address information asymmetry problems, are shown to create moral hazard problems of their own. In particular, the guarantees make acquiring banks...

This paper examines panel evidence concerning the role of financial development in economic growth. I decompose the well-documented relationship between financial development and growth to examine whether financial development affects growth solely through its contribution to growth in factor...

We examine the relationship between indicators of financial development and economic performance for a cross-country panel over long and short periods. Our long-term results are consistent with much of the literature in that we find a positive relationship between financial development and...

This paper develops an open-economy version of the Bernanke-Blinder model which indicates that sterilization efforts through increases in reserve requirements will have limited impact if viable financial alternatives to the commercial banking sector exists. We then examine the capital inflow...