Crises and Liquidity: Evidence and Interpretation

30 Pages Posted: 15 Feb 2001

See all articles by Enrica Detragiache

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR); University of Michigan at Ann Arbor - The William Davidson Institute

Date Written: January 2001

Abstract

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 is increasing in the proportion of short-term debt and of debt service due and decreasing in 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.

Keywords: debt crises, default, creditor runs

JEL Classification: F34, F32

Suggested Citation

Detragiache, Enrica and Spilimbergo, Antonio, Crises and Liquidity: Evidence and Interpretation (January 2001). IMF Working Paper No. 01/2. Available at SSRN: https://ssrn.com/abstract=260229 or http://dx.doi.org/10.2139/ssrn.260229

Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Antonio Spilimbergo (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6346 (Phone)
202-623-6336 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Michigan at Ann Arbor - The William Davidson Institute ( email )

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

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