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Article: Researchers from Harvard University publish findings in international economics.
- Article from:
- Economics Week
- Article date:
- March 13, 2009
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"Most models currently used to determine optimal foreign reserve holdings take the level of international debt as given. However, given the sovereign's willingness-to-pay incentive problems, reserve accumulation may reduce sustainable debt levels," scientists writing in the Journal of International Economics report.
"In addition, assuming constant debt levels does not allow addressing one of the puzzles behind using reserves as a means to avoid the negative effects of crisis: why do not sovereign countries reduce their sovereign debt instead? To study the joint decision of holding sovereign debt and reserves, we construct a stochastic dynamic equilibrium model ...
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