External Liabilities and Crises

By Luís A. V. Catão, G. Milesi-Ferretti. Social Science Research Network, 2013

262 citations recorded by the source corpus.

We examine the determinants of external crises, focusing on the role of foreign liabilities and their composition. Using a variety of statistical tools and comprehensive data spanning 1970-2011, we find that the ratio of net foreign liabilities to GDP is a significant crisis predictor. This is primarily due to the net position in debt instruments--the effect of net equity liabilities is weaker and net FDI liabilities seem if anything an offset factor. We also find that: i) breaking down net external debt into its gross asset and liability counterparts does not add significant explanatory power to crisis prediction; ii) the current account is a powerful predictor; iii) foreign exchange reserves reduce the likelihood of crisis more than other foreign asset holdings; iv) a parsimonious probit containing those and a handful of other variables has good predictive performance in- and out-of-sample. The latter result stems largely from our focus on external crises sensu stricto.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/8ddf7bee81fcd7f539e6618364891c7cd6f89089

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

(Why) Should Current Account Balances Be Reduced? (2011, background): “See, for example, Kaminsky and Reinhart (1999) and Catão and Milesi-Ferretti (2011).”