Why do emerging economies borrow short term?

Fernando Broner, Guido Lorenzoni () and Sergio Schmukler

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We argue that one reason why emerging economies borrow short term is that it is cheaper than borrowing long term. This is especially the case during crises, as in these episodes the relative cost of long-term borrowing increases. We construct a unique database of sovereign bond prices, returns, and issuances at di¤erent maturities for 11 emerging economies from 1990 to 2009 and present a set of new stylized facts. On average, these countries pay a higher risk premium on long-term than on short-term bonds. During crises, the di¤erence between the two risk premia increases and issuance shifts towards shorter maturities. To illustrate our argument, we present a simple model in which the maturity structure is the outcome of a risk sharing problem between an emerging economy subject to rollover crises and risk averse international investors.

Keywords: emerging markets; debt crises; investor risk aversion; maturity structure; risk premium; term premium (search for similar items in EconPapers)
JEL-codes: E43 F30 F32 F34 F36 G15 (search for similar items in EconPapers)
Date: 2003-08, Revised 2011-12
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: WHY DO EMERGING ECONOMIES BORROW SHORT TERM? (2013)
Working Paper: Why Do Emerging Economies Borrow Short Term? (2007)
Working Paper: Why Do Emerging Economies Borrow Short Term? (2007)
Working Paper: Why Do Emerging Economies Borrow Short Term? (2006)
Working Paper: Why do emerging economies borrow short term? (2004)
Working Paper: Why Do Emerging Economies Borrow Short Term?
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:838

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