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Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis

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  • Benmelech, Efraim
  • Dvir, Eyal

Abstract

Does short-term debt increase vulnerability to financial crisis, or does short-term debt reflect – rather than cause – the incipient crisis? We study the role that short-term debt played in the collapse of the East Asian financial sector in 1997–1998. We alleviate concerns about the endogeneity of short-term debt by using long-term debt obligations that matured during the crisis. We find that debt obligations issued at least three years before the crisis had a negative, albeit sometimes insignificant, effect on the probability of failure. Our results are consistent with the view that short-term debt reflects, rather than causes, distress in financial institutions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 2 ()
Pages: 485-494

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Handle: RePEc:eee:inecon:v:89:y:2013:i:2:p:485-494

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Short-Term Debt; Debt Maturity; Financial Crises; East Asian Crisis; Bank Runs;

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Cited by:
  1. Bartoli, Francesca & Ferri, Giovanni & Murro, Pierluigi & Rotondi, Zeno, 2013. "Bank–firm relations and the role of Mutual Guarantee Institutions at the peak of the crisis," Journal of Financial Stability, Elsevier, vol. 9(1), pages 90-104.
  2. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 1. Drivers of Systemic Banking Crises: The Role of Bank-Balance-Sheet Contagion and Financial Account Structure," OECD Economics Department Working Papers 902, OECD Publishing.
  3. Rudiger Ahrend & Antoine Goujard & Cyrille Schwellnus, 2012. "International Capital Mobility: Which Structural Policies Reduce Financial Fragility?," OECD Economic Policy Papers 2, OECD Publishing.
  4. Gianni La Cava, 2013. "Inventory Investment in Australia and the Global Financial Crisis," RBA Research Discussion Papers rdp2013-13, Reserve Bank of Australia.

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