International monetary equilibrium with default |
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| Institution: | 1. ICEF, NRU Higher School of Economics, Moscow, Russian Federation;2. Saïd Business School and St. Edmund Hall, University of Oxford, United Kingdom;1. Assistant Professor Department of Computer Science and Engineering Anna University Regional Office, Madurai, Tamilnadu, India;2. Professor Department of Information Technology K.L.N.College of Engineering, Pottapalayam, Sivaganga, Tamil Nadu, India;1. Research Institute for Economics and Business Administration, Kobe University, Japan;2. IPAG Business School, Paris, France;3. Research School of Economics, Australian National University, Australia |
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| Abstract: | We present an integrated framework for the study of the international financial economy with trade, fiat money, monetary and fiscal policy, endogenous default and regulation. Money is introduced via a cash-in-advance requirement and real trade is endogenous. The standard international finance pricing results obtain. Market incompleteness and positive default in equilibrium allow for the study of the transmission of default through the international financial markets and imply a positive role for policy. Finally, we present an example where, due to the trade-off between the non-pecuniary cost of default and the resulting allocation, a Pareto improvement occurs following an increase in interest rates. |
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| Keywords: | International finance Monetary policy Default Equilibrium analysis |
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