Why Do Emerging Economies Borrow Short Term?

Why Do Emerging Economies Borrow Short Term?

The authors argue that emerging economies borrow short term due to the high risk premium charged by international capital markets on long-term debt. They first present a model where the debt maturity structure is the outcome of a risk-sharing probl...

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Bibliographic Details
Main Authors: Broner, Fernando A., Lorenzoni, Guido, Schmukler, Sergio L.
Format: Policy Research Working Paper
Language:English
en_US
Published: World Bank, Washington, D.C. 2013
Subjects:
EMERGING ECONOMIES
SHORT TERM BORROWING
RISK PREMIUM
CAPITAL MARKETS
LONG-TERM DEBT
MATURITY ACCELERATION
RISK SHARING
LIQUIDITY (ECONOMICS)
BOND TRANSFER
BORROWING COSTS
BOND PRICES
Online Access:http://documents.worldbank.org/curated/en/2004/09/5119777/emerging-economies-borrow-short-term
http://hdl.handle.net/10986/14139
id okr-10986-14139
recordtype oai_dc
spelling okr-10986-141392021-04-23T14:03:21Z Why Do Emerging Economies Borrow Short Term? Broner, Fernando A. Lorenzoni, Guido Schmukler, Sergio L. EMERGING ECONOMIES SHORT TERM BORROWING RISK PREMIUM CAPITAL MARKETS LONG-TERM DEBT MATURITY ACCELERATION RISK SHARING LIQUIDITY (ECONOMICS) BOND TRANSFER BORROWING COSTS BOND PRICES The authors argue that emerging economies borrow short term due to the high risk premium charged by international capital markets on long-term debt. They first present a model where the debt maturity structure is the outcome of a risk-sharing problem between the government and bondholders. By issuing long-term debt, the government lowers the probability of a liquidity crisis, transferring risk to bondholders. In equilibrium, this risk is reflected in a higher risk premium and borrowing cost. Therefore, the government faces a tradeoff between safer long-term borrowing and cheaper short-term debt. Second, the authors construct a new database of sovereign bond prices and issuance. They show that emerging economies pay a positive term premium (a higher risk premium on long-term bonds than on short-term bonds). During crises, the term premium increases, with issuance shifting toward shorter maturities. This suggests that changes in bondholders' risk aversion are important to understand emerging market crises. 2013-06-24T14:34:45Z 2013-06-24T14:34:45Z 2004-09 http://documents.worldbank.org/curated/en/2004/09/5119777/emerging-economies-borrow-short-term http://hdl.handle.net/10986/14139 English en_US Policy Research Working Paper;No.3389 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic EMERGING ECONOMIES
SHORT TERM BORROWING
RISK PREMIUM
CAPITAL MARKETS
LONG-TERM DEBT
MATURITY ACCELERATION
RISK SHARING
LIQUIDITY (ECONOMICS)
BOND TRANSFER
BORROWING COSTS
BOND PRICES
spellingShingle EMERGING ECONOMIES
SHORT TERM BORROWING
RISK PREMIUM
CAPITAL MARKETS
LONG-TERM DEBT
MATURITY ACCELERATION
RISK SHARING
LIQUIDITY (ECONOMICS)
BOND TRANSFER
BORROWING COSTS
BOND PRICES
Broner, Fernando A.
Lorenzoni, Guido
Schmukler, Sergio L.
Why Do Emerging Economies Borrow Short Term?
relation Policy Research Working Paper;No.3389
description The authors argue that emerging economies borrow short term due to the high risk premium charged by international capital markets on long-term debt. They first present a model where the debt maturity structure is the outcome of a risk-sharing problem between the government and bondholders. By issuing long-term debt, the government lowers the probability of a liquidity crisis, transferring risk to bondholders. In equilibrium, this risk is reflected in a higher risk premium and borrowing cost. Therefore, the government faces a tradeoff between safer long-term borrowing and cheaper short-term debt. Second, the authors construct a new database of sovereign bond prices and issuance. They show that emerging economies pay a positive term premium (a higher risk premium on long-term bonds than on short-term bonds). During crises, the term premium increases, with issuance shifting toward shorter maturities. This suggests that changes in bondholders' risk aversion are important to understand emerging market crises.
format Publications & Research :: Policy Research Working Paper
author Broner, Fernando A.
Lorenzoni, Guido
Schmukler, Sergio L.
author_facet Broner, Fernando A.
Lorenzoni, Guido
Schmukler, Sergio L.
author_sort Broner, Fernando A.
title Why Do Emerging Economies Borrow Short Term?
title_short Why Do Emerging Economies Borrow Short Term?
title_full Why Do Emerging Economies Borrow Short Term?
title_fullStr Why Do Emerging Economies Borrow Short Term?
title_full_unstemmed Why Do Emerging Economies Borrow Short Term?
title_sort why do emerging economies borrow short term?
publisher World Bank, Washington, D.C.
publishDate 2013
url http://documents.worldbank.org/curated/en/2004/09/5119777/emerging-economies-borrow-short-term
http://hdl.handle.net/10986/14139
_version_ 1764430609799708672

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