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http://hdl.handle.net/10419/64119
  

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dc.contributor.authorAizenman, Joshuaen_US
dc.contributor.authorFernández-Ruiz, Jorgeen_US
dc.date.accessioned2009-07-14en_US
dc.date.accessioned2012-09-21T11:55:56Z-
dc.date.available2012-09-21T11:55:56Z-
dc.date.issued2006en_US
dc.identifier.urihttp://hdl.handle.net/10419/64119-
dc.description.abstractThis paper evaluates the challenges facing developing countries when there is uncertainty about the policy maker type. We consider a country characterized by volatile output, inelastic demand for fiscal outlays, high tax collection costs, and sovereign risk, where future output depends on the type of policymaker in place today. There are two policymakers - type T chooses debt and international reserves to smooth tax collection costs; type S has higher discount factor, aiming at obtaining current resources for narrow interest groups, and preferring not to undertake costly reforms that may enhance future output. Financial markets do not know the type of policymaker in place and try to infer its type by looking at its financial choices. We show that various adverse shocks (lower output, higher real interest rate, etc.) can induce a switch from an equilibrium where each policy maker chooses its preferred policy to another where T distorts its policies in order to separate itself from S in the least costly way. This is accomplished by type T reducing both international reserves and external debt. Further decline in output would induce type T to lower debt, and reserves would fall at a higher rate than otherwise expected.en_US
dc.language.isoengen_US
dc.publisherSanta Cruz Inst. for International Economics Santa Cruz, Calif.en_US
dc.relation.ispartofseriesWorking Papers, Santa Cruz Center for International Economics 06-08en_US
dc.subject.jelF31en_US
dc.subject.jelF34en_US
dc.subject.jelF36en_US
dc.subject.ddc330en_US
dc.subject.keywordcredibilityen_US
dc.subject.keywordinternational reservesen_US
dc.subject.keywordexternal debten_US
dc.subject.stwWährungsreservenen_US
dc.subject.stwGlaubwürdigkeiten_US
dc.subject.stwSignallingen_US
dc.subject.stwAuslandsverschuldungen_US
dc.subject.stwTheorieen_US
dc.titleSignaling credibility - choosing optimal debt and international reservesen_US
dc.typeWorking Paperen_US
dc.identifier.ppn604628552en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Working Papers, Santa Cruz Institute for International Economics, UC Santa Cruz

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