Short-Term Capital Flows
44 Pages Posted: 3 Feb 2000 Last revised: 14 Oct 2010
Date Written: September 1999
Abstract
We provide a conceptual and empirical framework for evaluating the effects of short-term capital flows. A simple model of the joint determination of the maturity and cost of external borrowing highlights the role played by self-fulfilling crises. The model also specifies the circumstances under which short-term debt accumulation is socially excessive. The empirical analysis shows that the short-term debt to reserves ratio is a robust predictor of financial crises, and that greater short-term exposure is associated with more severe crises when capital flows reverse. Higher levels of M2/GDP and per-capita income are associated with shorter-term maturities of external debt. The level of international trade does not seem to have any relationship with levels of short-term indebtedness, which suggests that trade credit plays an insignificant role in driving short-term capital flows. Our policy analysis focuses on ways in which potential illiquidity can be avoided.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Onset of the East Asian Financial Crisis
By Steven Radelet and Jeffrey D. Sachs
-
Did the Malaysian Capital Controls Work?
By Ethan Kaplan and Dani Rodrik
-
Did the Malaysian Capital Controls Work?
By Ethan Kaplan and Dani Rodrik
-
Did the Malaysian Capital Controls Work?
By Ethan Kaplan and Dani Rodrik
-
Stock Index Futures Prices and the Asian Financial Crisis
By Taufiq Hassan, Mohamad Ariff, ...
-
By Ian Anderson, H. W. Arndt, ...
-
Bank Runs, Welfare and Policy Implications
By Haibin Zhu
