Origins of the Maturity and Currency Mismatches in the Balance Sheet of Emerging Countries: a Theoretical Approach
The aim of this paper is to highlight the origins of the currency and maturity mismatches in the balance sheets of emerging countries. We show that short-term debt in the form of demandable debt works as a commitment device of the financial intermediary and as a form of protection of foreign lenders in a context of poor enforceability of contracts. The currency mismatch in the non-tradable sector is mainly viewed as a supply-side phenomenon. It results from the choice of foreign lenders whose anticipations of exchange rate risk overpass those of default of the banking and/or private sector following a real adverse shock. Finally, when it comes to simultaneously explain the maturity and the currency composition of debt, the paper shows that the short-term foreign currency denominated debt, with the option of early withdrawal of the demandable debt, allows investors to offset the debtor default risk if a currency depreciation occurs.
|Date of creation:||Jun 2003|
|Publication status:||Published in Symposium on Banking and Monetary Economics, Jun 2003, Birmingham, United Kingdom|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00424465|
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