01822cas a2200241 a 4500 AALejournalIMF000137 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451845648 1018-5941 BD-DhAAL BD-DhAAL Detragiache, Enrica. Rational Liquidity Crises in the Sovereign Debt Market : In Search of a Theory / Enrica Detragiache. Washington, D.C. : International Monetary Fund, 1996. 1 online resource (32 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors. It is shown that, when the creditor side of the market consists of many small investors there may be multiple rational expectations equilibria. In one equilibrium, creditors' pessimistic expectations about the borrower's creditworthiness become self-fulfilling, and the borrower experiences a liquidity crisis. Multiple equilibria can be avoided by marketing the loan appropriately or by developing a reputation for following good policies. Liquidity problems can also arise because of the temporary disruption of international bond markets due to events unrelated to the borrower's circumstances. Policies responses are discussed. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1996/038 Full text available on IMF http://elibrary.imf.org/view/journals/001/1996/038/001.1996.issue-038-en.xml IMF e-Library