TY  - JOUR
AU  - Uribe,Martin
TI  - On Overborrowing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11913
PY  - 2006
Y2  - January 2006
UR  - http://www.nber.org/papers/w11913
L1  - http://www.nber.org/papers/w11913.pdf
N1  - Author contact info:
Martin Uribe
Department of Economics
Columbia University
International Affairs Building
New York, NY 10027
Tel: 212 851 4008
Fax: 212 854 8059
E-Mail: martin.uribe@columbia.edu
AB  - This paper characterizes the equilibrium dynamics in an economy facing an aggregate debt ceiling. This borrowing limit is intended to capture an environment in which foreign investors base their lending decisions predominantly upon macro indicators. Individual agents do not internalize the borrowing constraint. Instead, a country interest-rate premium emerges to clear the financial market. The implied equilibrium dynamics are compared to those arising from a model in which the debt ceiling is imposed at the level of each individual agent. The central finding of the paper is that the economy with the aggregate borrowing limit does not generate higher levels of debt than the economy with the individual borrowing limit. That is, there is no overborrowing in equilibrium.
ER  -