Crises and Liquidity; Evidence and Interpretation
Enrica Detragiache () and
Antonio Spilimbergo ()
No 01/2, IMF Working Papers from International Monetary Fund
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: Default; Financial crisis; Debt crises, creditor runs, short-term debt, debt service, probability, external debt, liquidity variables, International Lending and Debt Problems, (search for similar items in EconPapers)
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