External liabilities and crises

Luis Catão () and Gian Maria Milesi-Ferretti ()

Journal of International Economics, 2014, vol. 94, issue 1, 18-32

Abstract: We examine the determinants of external crises, focusing on the role of foreign liabilities and their composition. Using a variety of statistical tools and comprehensive data spanning 1970–2011, we find that the ratio of net foreign liabilities to GDP is a significant crisis predictor. This is primarily due to the net position in debt instruments—the effect of net equity liabilities is weaker and net FDI liabilities seem, if anything, an offset factor. We also find that: i) breaking down net external debt into its gross asset and liability counterparts does not add significant explanatory power to crisis prediction; ii) the current account is a powerful predictor; iii) foreign exchange reserves reduce the likelihood of crisis more than other foreign asset holdings; and iv) a parsimonious probit containing those and a handful of other variables has good predictive performance in- and out-of-sample. The latter result stems largely from our focus on external crises sensu stricto.

Keywords: International investment positions; Sovereign debt; Currency crises; Current account imbalances; Foreign exchange reserves (search for similar items in EconPapers)
JEL-codes: E44 F32 F34 G15 H63 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (112)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199614000713
Full text for ScienceDirect subscribers only

Related works:
Working Paper: External Liabilities and Crises (2014)
Working Paper: External Liabilities and Crises (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:94:y:2014:i:1:p:18-32

DOI: 10.1016/j.jinteco.2014.05.003

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().