{
  "title": "External Liabilities and Crises",
  "publication": "IMF Working Papers, May 16, 2013",
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  "summary": "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 (NFL) to GDP is a significant crisis predictor, and the",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Title: External Liabilities and Crises\n- Authors: Luis Catão, Gian M Milesi-Ferretti\n- Date: May 16, 2013\n- Series: IMF Working Papers, Working Paper No. 2013/113\n- Pages: 37\n- Volume: 2013\n- Issue: 113\n- DOI: https://doi.org/10.5089/9781484315910.001\n- ISBN: 9781484315910\n- ISSN: 1018-5941\n- Sample period: 1970-2011\n- Primary subject areas: Balance of payments; Current account; Current account balance; External debt; Financial crises; Foreign direct investment"
    },
    {
      "heading": "Key empirical findings",
      "content": "- The ratio of net foreign liabilities (NFL) to GDP is a significant predictor of external crises.\n- Predictive thresholds identified:\n  - NFL to GDP is particularly predictive when it exceeds 50 percent in absolute terms.\n  - NFL to GDP is also particularly predictive when it exceeds 20 percent of the country-specific historical mean.\n- Composition matters:\n  - The predictive power stems primarily from net external debt.\n  - Net equity liabilities have a weaker effect.\n  - Net FDI liabilities appear, if anything, to be an offset factor.\n- Additional empirical results:\n  - Breaking down net external debt into gross asset and liability counterparts does not add significant explanatory power for crisis prediction.\n  - The current account is a powerful predictor of crises, whether measured unconditionally or as deviations from conventionally estimated “norms”.\n  - Foreign exchange reserves reduce the likelihood of crisis more than other foreign asset holdings.\n- Model performance:\n  - A parsimonious probit model that includes NFL, current account measures, foreign exchange reserves, and a handful of other variables has good predictive performance both in-sample and out-of-sample.\n  - The strong performance is attributed largely to the paper’s focus on external crises stricto sensu."
    },
    {
      "heading": "Methodology and data scope",
      "content": "- Data span: 1970-2011.\n- Empirical approach: variety of statistical tools applied to comprehensive cross-country data.\n- Crisis focus: external crises (external crises stricto sensu)."
    },
    {
      "heading": "Implications for monitoring and risk assessment",
      "content": "- Monitoring net foreign liabilities to GDP, with attention to the 50 percent absolute threshold and the 20 percent of historical-mean benchmark, can improve early detection of external crisis risk.\n- Emphasize net external debt in vulnerability assessments rather than net equity or net FDI liabilities.\n- Track current account levels and deviations from estimated norms as central indicators of crisis probability.\n- Maintain foreign exchange reserves as a buffer, given their relatively stronger association with reduced crisis likelihood.\n\nSource: External Liabilities and Crises, Luis Catão and Gian M Milesi-Ferretti; IMF Working Papers No. 2013/113; May 16, 2013.\n\n---\n\n Content in this bundle\n\n- wp13113\n  - wp13113 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp13113 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/external-liabilities-and-crises-40545"
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    "Authors: Luis Catão, Gian M Milesi-Ferretti",
    "Published: May 16, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484315910.001",
    "Title: External Liabilities and Crises",
    "Authors: Luis Catão, Gian M Milesi-Ferretti",
    "Date: May 16, 2013",
    "Series: IMF Working Papers, Working Paper No. 2013/113",
    "Pages: 37",
    "Volume: 2013",
    "Issue: 113",
    "DOI: https://doi.org/10.5089/9781484315910.001",
    "ISBN: 9781484315910",
    "ISSN: 1018-5941",
    "Sample period: 1970-2011",
    "Primary subject areas: Balance of payments; Current account; Current account balance; External debt; Financial crises; Foreign direct investment",
    "The ratio of net foreign liabilities (NFL) to GDP is a significant predictor of external crises.",
    "Predictive thresholds identified:",
    "Composition matters:",
    "Additional empirical results:",
    "Model performance:",
    "Data span: 1970-2011.",
    "Empirical approach: variety of statistical tools applied to comprehensive cross-country data.",
    "Crisis focus: external crises (external crises stricto sensu).",
    "Monitoring net foreign liabilities to GDP, with attention to the 50 percent absolute threshold and the 20 percent of historical-mean benchmark, can improve early detection of external crisis risk.",
    "Emphasize net external debt in vulnerability assessments rather than net equity or net FDI liabilities.",
    "Track current account levels and deviations from estimated norms as central indicators of crisis probability.",
    "Maintain foreign exchange reserves as a buffer, given their relatively stronger association with reduced crisis likelihood.",
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