International Lending with Moral Hazard and Risk of Repudiation Public Deposited

Creator Series Issue number
  • 381
Date Created
  • 1987-11
  • This paper examines the optimal debt contract between lenders and a sovereign borrower when the borrower is free to repudiate the debt and when his decision to invest or consume borrowed funds is unobservable. We show that recurrent debt crises are a necessary part of the incentive structure which supports the optimal pattern of lending.

Subject (JEL) Keyword Date Modified
  • 07/15/2019
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
  • Federal Reserve Bank of Minneapolis
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