Suppose in two-period small open economy model

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Suppose in a two-period small open economy model there is a limited commitment friction and the possibility the nation could default in the current or future period. Suppose that, if the nation does not default, then the limited commitment constrain does not bind. Could default still be preferred in the current period to not defaulting? Explain, with the aid of a diagram.

Reference no: EM131173349

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