Crises and Liquidity; Evidence and Interpretation
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.
Year of publication: |
2001-01-01
|
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Authors: | Detragiache, Enrica ; Spilimbergo, Antonio |
Institutions: | International Monetary Fund (IMF) |
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