Crises and Liquidity : Evidence and Interpretation

Crises and Liquidity : Evidence and Interpretation
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Volume/Issue:
2001/2
Series:
IMF Working Papers
Author(s):
Enrica Detragiache, and Antonio Spilimbergo
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
January 2001
DOI:
http://dx.doi.org/10.5089/9781451841763.001
ISBN:
9781451841763
ISSN:
1018-5941
Page:
30
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.
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