Research Catalog

Title

Debt Overhang, Liquidity Constraints and Adjustment Incentives [electronic resource] / Bert Hofman and Helmut Reisen

Author

Hofman, Bert.

Publication

Paris : OECD Publishing, 1990.

Details

Additional Authors

Reisen, Helmut.

Description

33 p.; 21 x 29.7cm.

Summary

Investment in most heavily indebted countries has been weak since 1982. The widely accepted debt overhang proposition interprets the investment drop as a moral hazard problem: a heavy debt burden raises the incentive to consume, because the marginal benefit of investment would go to the creditor. This paper develops several hypotheses on optimal reactions of a credit-constrained debtor country on an increase in debt, on variations in the credit constraint, on changes in interest rates, and contrasts these with the predictions stemming from the debt overhang proposition.Empirical specifications of conventional investment functions and consumption functions (along the Permanent Income Hypothesis) lead to reject the debt overhang proposition, but find that the switch from positive to negative external transfers to the debtor countries is an important explanation for their investment drop. The major policy conclusion is that the 1989 shift in international debt management (the Brady ...

Series Statement

OECD Development Centre Working Papers, 1815-1949 ; no.32

Uniform Title

OECD Development Centre Working Papers, no.32.

Subject

Development

LCCN

10.1787/356147450736

OCLC

oecd-lib

Author

Hofman, Bert.

Title

Debt Overhang, Liquidity Constraints and Adjustment Incentives [electronic resource] / Bert Hofman and Helmut Reisen

Imprint

Paris : OECD Publishing, 1990.

Series

OECD Development Centre Working Papers, 1815-1949 ; no.32

OECD Development Centre Working Papers, 1815-1949 ; no.32.

Connect to:

Full text online available onsite at NYPL

Indexed Term

Development

Added Author

Reisen, Helmut.

Other Standard Identifier

10.1787/356147450736 doi