Uncertainty and Debt-Maturity in Emerging Markets
Journal
The B.E. Journal in Macroeconomics
ISSN
1534-6021
ISSN-Digital
1534-5998
Type
journal article
Date Issued
2006-03
Author(s)
Abstract
Although a lot has been written on the link between debt maturity and financial crises, it remains puzzling why the private sector in emerging market economies holds such a large share of short-term debt in the presence of substantial macroeconomic risk. To understand this phenomenon, we propose a simple model in which debt maturity depends on economic uncertainty about investment returns. We show in particular that if lenders are risk averse, higher uncertainty can (i) lower the total debt level a country is able to borrow and (ii) tilt the debt profile towards short-term debt. We take these model implications to the data using a panel of 28 emerging market economies and various indicators for macroeconomic uncertainty. We find substantial empirical support for the model's predictions.
Language
English
Keywords
Debt-Maturity in Emerging Markets
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
Yes
Publisher
De Gruyter
Publisher place
Berlin
Volume
6
Number
1
Start page
1
End page
28
Pages
28
Subject(s)
Eprints ID
235073