Paper #838

Títol:

Why do emerging economies borrow short term?

Autors:

Fernando Broner, Guido Lorenzoni i Sergio L. Schmukler

Data:

Agost 2003

Resum:

We argue that one reason why emerging economies borrow short term is that it is cheaper than borrowing long term. This is especially the case during crises, as in these episodes the relative cost of long-term borrowing increases. We construct a unique database of sovereign bond prices, returns, and issuances at di¤erent maturities for 11 emerging economies from 1990 to 2009 and present a set of new stylized facts. On average, these countries pay a higher risk premium on long-term than on short-term bonds. During crises, the di¤erence between the two risk premia increases and issuance shifts towards shorter maturities. To illustrate our argument, we present a simple model in which the maturity structure is the outcome of a risk sharing problem between an emerging economy subject to rollover crises and risk averse international investors.

Paraules clau:

emerging markets; debt crises; investor risk aversion; maturity structure; risk premium; term premium

Codis JEL:

E43; F30; F32; F34; F36; G15

Àrea de Recerca:

Macroeconomia i Economia Internacional

Publicat a:

Journal of the European Economic Association, 11 (S1), 2013, 67-100

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