## Crises and Liquidity: Evidence and Interpretation

_IMF Working Papers, January 1, 2001_

## Source details

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## Bibliographic details
- Authors: Enrica Detragiache, Antonio Spilimbergo
- Published: January 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451841763.001

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### Summary findings
- Less liquid countries are more likely to default on their external debt in a large panel of countries.
- For given total external debt:
  - The probability of a crisis increases with the proportion of short-term debt.
  - The probability of a crisis increases with debt service coming due.
  - The probability of a crisis decreases with foreign exchange reserves.
- The observed correlations are consistent with a standard model of optimal default and need not be ascribed to self-fulfilling creditor runs.
- The correlation with short-term debt appears to be driven by joint endogeneity.
- Policy implications are discussed in the paper.

### Interpretation and analytical context
- Empirical correlations (short-term debt share, debt service due, foreign exchange reserves) are consistent with theoretical optimal-default models rather than implying inevitable creditor-run mechanisms.
- Joint endogeneity is identified as an important driver of the correlation between crisis probability and short-term debt.

### Policy implications (as discussed)
- The paper discusses policy implications arising from the links between liquidity structure (short-term debt, debt service schedule, reserves) and crisis probability.
- Specific policy recommendations are part of the paper’s discussion (see full working paper for details).

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/crises-and-liquidity-evidence-and-interpretation-3963_