@techreport{NBERw12407, title = "Signaling Credibility ---
Choosing Optimal Debt and International Reserves", author =
"Joshua Aizenman and Jorge Fernández-Ruiz", institution =
"National Bureau of Economic Research", type = "Working Paper",
series = "Working Paper Series", number = "12407", year =
"2006", month = "August", URL =
"http://www.nber.org/papers/w12407", abstract = {This paper
evaluates the challenges facing developing countries when there
is uncertainty about the policy maker type. We consider a
country characterized by volatile output, inelastic demand for
fiscal outlays, high tax collection costs, and sovereign risk,
where future output depends on the type of policymaker in place
today. There are two policymakers -- type T chooses debt and
international reserves to smooth tax collection costs; type S
has higher discount factor, aiming at obtaining current
resources for narrow interest groups, and preferring not to
undertake costly reforms that may enhance future output.
Financial markets do not