Crises and Liquidity: Evidence and Interpretation
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Summary:
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.
Series:
Working Paper No. 2001/002
Subject:
Asset and liability management Debt default Debt service External debt Financial crises Liquidity
English
Publication Date:
January 1, 2001
ISBN/ISSN:
9781451841763/1018-5941
Stock No:
WPIEA0022001
Pages:
30
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