Debt maturity choices when capital inflows can suddenly stop

Much of the literature on capital inflow sudden stops uses models with short term debt only but draws conclusions about the role of debt maturities in crises. In this paper short and long term debt are introduced in an infinite horizon, representative agent model that is consistent with modern open economy macroeconomic models of the type presented in Obstfeld and Rogoff (1996). Phase diagrams are derived for the paths of consumption and debt in an economy suffering from sudden stops. Short-term capital controls are discussed as an application of the model to the policy-relevant debates.