Three sisters: The interlinkage between sovereign debt, currency, and banking crises

Sylvester C.W. Eijffinger and Bilge Karataş

Journal of International Money and Finance, 2023, vol. 131, issue C

Abstract: This study analyzes the interlinkage between sovereign debt, currency, and banking crises by applying panel data probit and multivariate probit models to a sample of 21 emerging economies observed monthly between 1985 and 2020. The results establish the simultaneity of the three crises in a given month, where banking, sovereign debt, and currency crises tend to occur jointly caused by common unobservable factors. The results also indicate that banking crises usually precede sovereign defaults, but not vice versa. Indirect effects suggest that short-term external indebtedness during banking crises, and misaligned exchange rates corrected by currency crises increase the future sovereign default likelihood.

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: 2023
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Citations: View citations in EconPapers (5)

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Working Paper: Three Sisters: The Interlinkage between Sovereign Debt, Currency and Banking Crises (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:131:y:2023:i:c:s0261560622002017

DOI: 10.1016/j.jimonfin.2022.102798

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