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Uncertainty and Debt-Maturity in Emerging Markets

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Author Info

  • Bussiere Matthieu

    ()
    (European Central Bank)

  • Fratzscher Marcel

    ()
    (European Central Bank)

  • Koeniger Winfried

    ()
    (IZA, University of Bonn)

Abstract

Although a lot has been written on the link between debt maturity and financial crises, it remains puzzling why the private sector in emerging market economies holds such a large share of short-term debt in the presence of substantial macroeconomic risk. To understand this phenomenon, we propose a simple model in which debt maturity depends on economic uncertainty about investment returns. We show in particular that if lenders are risk averse, higher uncertainty can (i) lower the total debt level a country is able to borrow and (ii) tilt the debt profile towards short-term debt. We take these model implications to the data using a panel of 28 emerging market economies and various indicators for macroeconomic uncertainty. We find substantial empirical support for the model's predictions.

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File URL: http://www.degruyter.com/view/j/bejm.2006.6.issue-1/bejm.2006.6.1.1348/bejm.2006.6.1.1348.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 1 (March)
Pages: 1-28

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Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:5

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Web page: http://www.degruyter.com

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Cited by:
  1. Bakis, Ozan & Karanfil, Fatih & Polat, Sezgin, 2012. "Interactions between bank behavior and financial structure: evidence from a developing country," GIAM Working Papers 12-1, Galatasaray University Economic Research Center.
  2. Bussière, Matthieu, 2007. "Balance of payment crises in emerging markets: how early were the “early” warning signals?," Working Paper Series 0713, European Central Bank.

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