Three Sisters: The Interlinkage between Sovereign Debt, Currency and Banking Crises

Sylvester Eijffinger and Bilge Karataş

No 9369, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The sovereign debt default and the linkages from banking and currency crisis have been rarely explored in the crisis literature. This study attempts to dive into this unexplored area by applying panel data binary choice model on a sample with 20 emerging countries having monthly observations for the years between 1985 and 2007. The non-linear linkages from currency and banking crises to sovereign defaults are explored by using the interactions of these crises with international illiquidity, appreciated real exchange rates and real international monetary policy rates. It is discovered that currency, banking and debt crises tend to occur simultaneously. Prior occurrence of a currency crisis increases the sovereign default probability through appreciated real exchange rates, and in countries with high short-term indebtedness the occurrence of banking crisis raises the probability of a debt crisis.

Keywords: Debt crisis; Banking crisis; Currency crisis; Emerging markets (search for similar items in EconPapers)
JEL-codes: F31 F41 G01 H63 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Three sisters: The interlinkage between sovereign debt, currency, and banking crises (2023)
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