Three Sisters: The Interlinkage between Sovereign Debt, Currency and Banking Crises
AbstractThe sovereign debt default and the linkages from banking and currency crisis have been rarely explored in the crisis literature. This study attempts to dive into this unexplored area by applying panel data binary choice model on a sample with 20 emerging countries having monthly observations for the years between 1985 and 2007. The non-linear linkages from currency and banking crises to sovereign defaults are explored by using the interactions of these crises with international illiquidity, appreciated real exchange rates and real international monetary policy rates. It is discovered that currency, banking and debt crises tend to occur simultaneously. Prior occurrence of a currency crisis increases the sovereign default probability through appreciated real exchange rates, and in countries with high short-term indebtedness the occurrence of banking crisis raises the probability of a debt crisis.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9369.
Date of creation: Mar 2013
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- G01 - Financial Economics - - General - - - Financial Crises
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-CBA-2013-04-13 (Central Banking)
- NEP-IFN-2013-04-13 (International Finance)
- NEP-MON-2013-04-13 (Monetary Economics)
- NEP-OPM-2013-04-13 (Open Economy Macroeconomics)
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