 Private sector share of external debt and financial stability: Evidence from bank loansJournal of International Money and Finance, 2013, vol. 32, issue C, 17-41 Abstract: In the last two decades, the private sector has contracted a substantially larger share in the total amount of foreign-currency international debt (private sector share of external debt), especially in developing countries. In this paper, I empirically examine the effect of this phenomenon on bank loan prices. I find that the private sector share of external debt negatively and significantly impacts the price of bank loans. This result supports the hypothesis that private sector debt contributes to international financial stability to a greater degree than sovereign debt. Nevertheless, this impact is canceled out in the presence of fixed exchange regimes that are unsuitable with respect to fundamentals. In such circumstances, the private sector may take advantage of capital market distortions that are maintained by official authorities and thus exposes the country to further financial instability. Additional results corroborate the observation that the gain in financial stability stems from more efficient use of funds and reduced monitoring costs. Keywords: International debt crisis; Private sector debt; Sovereign debt; Financial stability; Bank loan (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:32:y:2013:i:c:p:17-41 DOI: 10.1016/j.jimonfin.2012.02.017 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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