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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.

Suggested Citation

  • Benmelech, Efraim & Dvir, Eyal, 2013. "Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis," Journal of International Economics, Elsevier, vol. 89(2), pages 485-494.
  • Handle: RePEc:eee:inecon:v:89:y:2013:i:2:p:485-494 DOI: 10.1016/j.jinteco.2011.12.004
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    16. Xingwang Qian & Andreas Steiner, 2016. "International Reserves, External Debt Maturity, and the Reinforcement Effect for Financial Stability," ifo Working Paper Series 211, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
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    More about this item

    Keywords

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

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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