Learn More
This paper shows (i) how entry and exit of rms in a competitive industry a ect the valuation of securities and optimal capital structure, and (ii) how, given a trade-o between the tax advantages and agency costs, a rm will optimally adjust its leverage level after it is set up. We derive simple pricing expressions for corporate debt in which the price(More)
Financial globalization had a rocky start in emerging economies hit by Sudden Stops. Foreign reserves have grown very rapidly since then, as if those countries were practicing a New Mercantilism that views foreign reserves as a war-chest for defense against Sudden Stops. This paper conducts a quantitative assessment of this argument using a stochastic(More)
Is sovereign borrowing so different from corporate debt that there is no need for bankruptcy-style procedures to protect debtors? With the waiver of immunity, sovereign debtors who already face severe disruption from short-term creditors grabbing their currency reserves are also exposed to litigious creditors trying to seize what assets they can in a 'race(More)
The risk premium in the US stock market has fallen far below its historic level, which Shiller (2000) attributes to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve which leads investors into the erroneous(More)
The existence of an empirical relationship between the adoption of an IMF programme and the concession of a debt rescheduling by commercial and o¢cial creditors is tested using a bivariate probit model. If countries who have arrangements with the IMF are more likely than others to obtain a rescheduling of their external debt we could conclude that the(More)
When the risk premium in the US stock market fell far below its historic level, Shiller (2000) attributed this to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve, which leads investors into the erroneous(More)
  • ARMAGEDDON WITH, CHAPTER, +6 authors Tomo Ota
  • 2010
An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to ÔovershootÕ equilibrium when an asset bubble bursts – threatening widespread insolvency and what Richard Koo calls a Ôbalance sheet recessionÕ. Besides interest rates cuts, asset purchases and capital restructuring(More)
East Asian economies caught in the recent crisis have seen their output contract fiercely despite enormous real exchange rate depreciation. Why are relative prices not maintaining demand and output at pre-crisis levels? We investigate the idea that there are negative supply-side shifts due to balance sheet effects. Specifically, we use the framework of(More)
We study a model of sovereign debt crisis that combines problems of creditor coordination and debtor moral hazard. Solving the sovereign debtor's incentives leads to excessive 'rollover failure' by creditors when sovereign default occurs. We discuss how the incidence of crises might be reduced by international sovereign bankruptcy procedures and relate this(More)