Short-Term Capital Flows

Dani Rodrik and Andres Velasco

No 7364, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a conceptual and empirical framework for evaluating the effects of short-term capital flows. A simple model of the joint determination of the maturity and cost of external borrowing highlights the role played by self-fulfilling crises. The model also specifies the circumstances under which short-term debt accumulation is socially excessive. The empirical analysis shows that the short-term debt to reserves ratio is a robust predictor of financial crises, and that greater short-term exposure is associated with more severe crises when capital flows reverse. Higher levels of M2/GDP and per-capita income are associated with shorter-term maturities of external debt. The level of international trade does not seem to have any relationship with levels of short-term indebtedness, which suggests that trade credit plays an insignificant role in driving short-term capital flows. Our policy analysis focuses on ways in which potential illiquidity can be avoided.

JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 1999-09
New Economics Papers: this item is included in nep-ifn and nep-mon
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (331)

Published as Pleskovic, Boris and Joseph E. Stiglitz. Annual World Bank Conference on Development Economics. Washington, D.C.: World Bank, 2000.

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