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Crises and Liquidity - Evidence and Interpretation

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Author Info
Enrica Detragiache
Antonio Spilimbergo

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Abstract

In a large panel of countries, we find that less liquid countries are more likely to default on their external debt. Specifically, for given total external debt, the probability of a crisis increases with the proportion of short-term debt and debt service coming due and decreases with foreign exchange reserves. This correlation, however, is consistent with a standard model of optimal default and need not be ascribed to self-fulfilling creditor runs. Also, the correlation with short-term debt appears to be driven by joint endogeneity. The policy implications are discussed.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/2.

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Length: 29 pages
Date of creation: 01 Jan 2001
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Handle: RePEc:imf:imfwpa:01/2

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Keywords: Financial crisis Liquidity External debt

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers 1921, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Stephen Morris & Hyun Song Shin, 1999. "Coordination Risk and the Price of Debt," Cowles Foundation Discussion Papers 1241, Cowles Foundation, Yale University. [Downloadable!]
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  3. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan Journals, vol. 46(2), pages 1. [Downloadable!] (restricted)
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  4. Barry Eichengreen & Ashoka Mody, 1999. "Lending Booms, Reserves, and the Sustainability of Short-Term Debt: Inferences from the Pricing of Syndicated Bank Loans," NBER Working Papers 7113, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
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  6. Chang, Roberto & Velasco, Andres, 2000. "Banks, debt maturity and financial crises," Journal of International Economics, Elsevier, vol. 51(1), pages 169-194, June. [Downloadable!] (restricted)
  7. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Working Papers 96/38, International Monetary Fund.
  8. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-1), pages 1-90. [Downloadable!]
  9. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
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  10. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall. [Downloadable!] (restricted)
  11. Flannery, Mark J, 1994. "Debt Maturity and the Deadweight Cost of Leverage: Optimally Financing Banking Firms," American Economic Review, American Economic Association, vol. 84(1), pages 320-31, March. [Downloadable!] (restricted)
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  12. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Stratmann & Bernardin Akitoby, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund. [Downloadable!]
  2. R. Gaston Gelos, Ratna Sahay and Guido Sandleris, 2008. "Sovereign Borrowing by Developing Countries: What Determines Market Access?," Business School Working Papers 2008-02, Universidad Torcuato Di Tella. [Downloadable!]
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  3. Eduardo Borensztein & Catherine A. Pattillo & Andrew Berg, 2004. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Working Papers 04/52, International Monetary Fund. [Downloadable!]
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  4. Luis Catão & Sandeep Kapur, 2006. "Volatility and the Debt-Intolerance Paradox," IMF Staff Papers, Palgrave Macmillan Journals, vol. 53(2), pages 1. [Downloadable!] (restricted)
  5. Hans Genberg & Astrit Sulstarova, 2005. "Macroeconomic Volatility, Debt Dynamics, and Sovereign Interest Rate Spreads," Working Papers 182005, Hong Kong Institute for Monetary Research. [Downloadable!]
  6. Paolo Manasse & Axel Schimmelpfennig & Nouriel Roubini, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund. [Downloadable!]
  7. Oren Sussman & Alexander Guembel, 2005. "Sovereign Debt Without Default Penalties," OFRC Working Papers Series 2005fe17, Oxford Financial Research Centre. [Downloadable!]
  8. Enzo Croce & V. Hugo Juan-Ramon, 2003. "Assessing Fiscal Sustainability: A Cross Country Comparison," IMF Working Papers 03/145, International Monetary Fund. [Downloadable!]
  9. Andryakov Alexander & Gurvich Evsey, 2002. "A Model of the Russian Crisis Development," EERC Working Paper Series 02-03e, EERC Research Network, Russia and CIS. [Downloadable!]
  10. André Faria & Martín Minnoni & Aleksandar Zaklan & Paolo Mauro, 2006. "The External Financing of Emerging Market Countries: Evidence from Two Waves of Financial Globalization," IMF Working Papers 06/205, International Monetary Fund. [Downloadable!]
  11. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Luis Catão & Bennett Sutton, 2002. "Sovereign Defaults: The Role of Volatility," IMF Working Papers 02/149, International Monetary Fund. [Downloadable!]
  14. Paolo Manasse & Nouriel Roubini, 2005. "'Rules of Thumb' for Sovereign Debt Crises," International Finance 0509003, EconWPA. [Downloadable!]
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  15. Kraay, Aart & Nehru, Vikram, 2004. "When is external debt sustainable?," Policy Research Working Paper Series 3200, The World Bank. [Downloadable!]
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  16. Törbjörn I. Becker & Paolo Mauro, 2006. "Output Drops and the Shocks That Matter," IMF Working Papers 06/172, International Monetary Fund. [Downloadable!]
  17. Claudio Soto & Alberto Naudon & Eduardo López & Alvaro Aguirre, 2004. "Acerca del Nivel Adecuado de las Reservas Internacionales," Working Papers Central Bank of Chile 267, Central Bank of Chile. [Downloadable!]
  18. Chikako Oka, 2003. "Anticipating Arrears to the IMF: Early Warning Systems," IMF Working Papers 03/18, International Monetary Fund. [Downloadable!]
  19. Jean Imbs & Paolo Mauro, 2007. "Pooling Risk Among Countries," IMF Working Papers 07/132, International Monetary Fund. [Downloadable!]
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  20. Amadou N. R. Sy, 2003. "Rating the Rating Agencies: Anticipating Currency Crises or Debt Crises," IMF Working Papers 03/122, International Monetary Fund. [Downloadable!]
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  21. Marcos Chamon & Paolo Mauro, 2005. "Pricing Growth-Indexed Bonds," IMF Working Papers 05/216, International Monetary Fund. [Downloadable!]
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