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Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis

  • Efraim Benmelech
  • Eyal Dvir

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17468.

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Date of creation: Sep 2011
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Publication status: published as Eyal Dvir & Efraim Benmelech, 2010. "Does short-term debt increase vulnerability to crisis? Evidence from the East Asian financial crisis," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
Handle: RePEc:nbr:nberwo:17468
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