Crises and Liquidity - Evidence and Interpretation

Enrica Detragiache () and Antonio Spilimbergo ()

No 01/2, IMF Working Papers from International Monetary Fund

Abstract: In a large panel of countries, we find that less liquid countries are more likely to default on their external debt. Specifically, for given total external debt, the probability of a crisis increases with the proportion of short-term debt and debt service coming due and decreases with foreign exchange reserves. This correlation, however, is consistent with a standard model of optimal default and need not be ascribed to self-fulfilling creditor runs. Also, the correlation with short-term debt appears to be driven by joint endogeneity. The policy implications are discussed.

Keywords: Financial crisis; Liquidity; External debt (search for similar items in EconPapers)
Date: 2001-01-01
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