IMF Working Papers

Sources of Debt Accumulation in a Small Open Economy

By Abdelhak S Senhadji

October 1, 1997

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Abdelhak S Senhadji. Sources of Debt Accumulation in a Small Open Economy, (USA: International Monetary Fund, 1997) accessed November 24, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the borrowing behavior of a small open economy of a developing country that relies heavily on imports for its capital formation and faces an upward-sloping supply function of foreign loans. Decision makers face uncertainty about the longevity of external shocks. That uncertainty generates forecast errors that lead to substantial debt accumulation. It is found that the assumption of an upward-sloping supply function of foreign loans, which is a more realistic formulation for developing countries than the usual perfect elasticity, offers an alternative to the Uzawa-type utility function for analyzing asset accumulation in the small open economy framework.

Subject: Exports, External debt, Financial services, Imports, International trade, Real interest rates, Terms of trade

Keywords: Business cycle, Debt Accumulation, Debt level, Developing Countries, Exports, External Shocks, Imports, Incomplete Information, Interest rate, Open economy, Real interest rates, Stochastic Dynamic General Equilibrium Model, Terms of trade, Terms of trade shock, World interest rate, WP

Publication Details

  • Pages:

    26

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1997/146

  • Stock No:

    WPIEA1461997

  • ISBN:

    9781451856606

  • ISSN:

    1018-5941

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