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Sudden stops and liability dollarization: Evidence from Asia's financial intermediaries

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  • Chue, Timothy K.
  • Cook, David

Abstract

Before the currency crisis of 1997-1998, East Asian financial intermediaries borrowed heavily in international markets. During the crisis, the intermediaries' stock market value declined sharply, and a sizable fraction of the institutions were closed or nationalized. We investigate how the short-term and the foreign-currency nature of the intermediaries' international borrowing contributed to these outcomes. From the impact of long-term international debt on the stock returns of surviving intermediaries, we observe the negative effects of the foreign-currency nature of international debt (liability dollarization). From the impact of short-term international debt on the likelihood of firm failure and on the size of surviving intermediaries' assets and liabilities, we observe the negative effects of the short-term nature of international debt (sudden stops).

Suggested Citation

  • Chue, Timothy K. & Cook, David, 2008. "Sudden stops and liability dollarization: Evidence from Asia's financial intermediaries," Pacific-Basin Finance Journal, Elsevier, vol. 16(4), pages 436-452, September.
  • Handle: RePEc:eee:pacfin:v:16:y:2008:i:4:p:436-452
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    Cited by:

    1. Muller, Aline & Verschoor, Willem F.C., 2007. "Asian foreign exchange risk exposure," Journal of the Japanese and International Economies, Elsevier, vol. 21(1), pages 16-37, March.
    2. David Cook & James Yetman, 2012. "Expanding central bank balance sheets in emerging Asia: a compendium of risk and some evidence," BIS Papers chapters,in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 30-75 Bank for International Settlements.

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