External Debt in General Equilibrium Models

So far, the analysis of the factors determining aggregate external debt has used the example of a small open country which could borrow as much as it wanted from the rest of the world in a perfect world capital market. This country could not influence real world interest rates, the price of the traded goods it produced, or the price of the raw material it imported; from its point of view all these were given in both periods. The effects of a raw material price rise on the rest of the world and the resultant reper-cussions on the country being studied were, however, not considered.