Crises and Liquidity: Evidence and Interpretation

Author/Editor:

Enrica Detragiache ; Antonio Spilimbergo

Publication Date:

January 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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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