External Liabilities and Crises

Gian Maria Milesi-Ferretti () and Catão, Luís
Authors registered in the RePEc Author Service: Luís A.V. Catão ()

No 10058, CEPR Discussion Papers from Centre for Economic Policy Research

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; 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 deebt; 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: 2014-07
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (134)

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Related works:
Journal Article: External liabilities and crises (2014)
Working Paper: External Liabilities and Crises (2013)
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