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Why Do Emerging Economies Borrow Short Term? Author info | Abstract | Publisher info | Download info | Related research | Statistics Fernando A. Broner
Guido Lorenzoni
Sergio L. Schmukler
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We argue that emerging economies borrow short term due to the high risk premium charged by bondholders on long-term debt. First, we present a model where the debt maturity structure is the outcome of a risk sharing problem between the government and bondholders. By issuing long-term debt, the government lowers the probability of a rollover crisis, transferring risk to bondholders. In equilibrium, this risk is reflected in a higher risk premium and borrowing cost. Therefore, the government faces a trade-off between safer long-term debt and cheaper short-term debt. Second, we construct a new database of sovereign bond prices and issuance. We show that emerging economies pay a positive term premium (a higher risk premium on long-term bonds than on short-term bonds). During crises, the term premium increases, with issuance shifting towards shorter maturities. The evidence suggests that international investors' time-varying risk aversion is crucial to understand the debt structure in emerging economies.
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Date of creation: May 2007Date of revision:
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Paper Broner, Fernando A. & Lorenzoni, Guido & Schmukler, Sergio L., 2004.
"Why do emerging economies borrow short term? ,"
Policy Research Working Paper Series
3389, The World Bank.
[Downloadable!] Fernando Broner & Guido Lorenzoni & Sergio L. Schmukler, 2003.
"Why Do Emerging Economies Borrow Short Term? ,"
Economics Working Papers
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"Why Do Emerging Economies Borrow Short Term? ,"
CEPR Discussion Papers
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"Why Do Emerging Economies Borrow Short Term? ,"
2006 Meeting Papers
841, Society for Economic Dynamics.
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This paper has been announced in the following NEP Reports :
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