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Capital Flows, Maturity Mismatches and Profitability in Emerging Markets: Evidence from Bank Level Data

  • Uluc Aysun

    (University of Connecticut)

Despite the extensive work on currency mismatches, research on the significance of maturity mismatches in emerging market countries is scarce. In this paper, I show that emerging market banks' maturity mismatches increase during periods of high capital inflows, and that banks with high maturity mismatches are less profitable during crisis periods but more profitable otherwise. Hence, banks face a tradeoff between higher returns and risk. These results follow from a panel regression on a data set I constructed by merging bank level data with aggregate data. A simple Diamond-Dybvig (1983) partial equilibrium framework motivates the empirical analysis.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2006-29.

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Length: 52 pages
Date of creation: Aug 2006
Date of revision: Oct 2007
Handle: RePEc:uct:uconnp:2006-29
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Web page: http://www.econ.uconn.edu/

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  1. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  2. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
  3. Roberto Chang & Andres Velasco, 1998. "Financial crises in emerging markets: a canonical model," FRB Atlanta Working Paper 98-10, Federal Reserve Bank of Atlanta.
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  5. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," NBER Working Papers 10387, National Bureau of Economic Research, Inc.
  6. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  7. Hoyt Bleakley & Kevin Cowan, 2005. "Maturity Mismatch and Financial Crises: Evidence from Emerging Market Corporations," IDB Publications (Working Papers) 6826, Inter-American Development Bank.
  8. de la Torre, Augusto & Schmukler & Sergio L., 2004. "Coping with risk through mismatches : domestic and international financial contracts for emerging economies," Policy Research Working Paper Series 3212, The World Bank.
  9. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc.
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  12. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
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  14. Jean Tirole, 2003. "Inefficient Foreign Borrowing: A Dual-and Common-Agency Perspective," Levine's Working Paper Archive 506439000000000136, David K. Levine.
  15. Sartoris, William L., 1993. "The term structure of interest rates and the asset and liability decisions of a financial intermediary," Journal of Economics and Business, Elsevier, vol. 45(2), pages 129-142, May.
  16. Barry Eichengreen, 2004. "Capital Flows and Crises," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550598, December.
  17. Arzu Tektas & E. Nur Ozkan-Gunay & Gokhan Gunay, 2005. "Asset and liability management in financial crisis," Journal of Risk Finance, Emerald Group Publishing, vol. 6(2), pages 135-149, March.
  18. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 709-737.
  19. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
  20. Bussière, Matthieu & Fratzscher, Marcel & Koeniger, Winfried, 2004. "Currency mismatch, uncertainty and debt maturity structure," Working Paper Series 0409, European Central Bank.
  21. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
  22. Buch, Claudia M. & Lusinyan, Lusine, 2003. "Determinants of short-term debt: a note," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 157-170, April.
  23. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers.
  24. Galindo, Arturo & Panizza, Ugo & Schiantarelli, Fabio, 2003. "Debt composition and balance sheet effects of currency depreciation: a summary of the micro evidence," Emerging Markets Review, Elsevier, vol. 4(4), pages 330-339, December.
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