Crises and Liquidity: Evidence and Interpretation

Enrica Detragiache () and Antonio Spilimbergo

No 2001/002, 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: WP; interest rate; Debt crises; default; creditor runs; liquidity variable; debt crisis; debt service due; crisis probability; share of short-term debt; crisis determinant; crisis definition; crisis observation; debt crisis variable; Debt default; Liquidity; Debt service; East Asia; Global (search for similar items in EconPapers)
Pages: 30
Date: 2001-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (145)

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