Insurance and Liquidity : Panel Evidence

The author presents evidence that balance sheet effects are critical determinants of both the likelihood of a crisis and of income losses following a crisis. She tests the validity of "insurance" and "liquidity" models of currency crisis. Both models predict that the occurrence o...

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Main Author:	Shankar, Rashmi
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	AGENTS ASSETS BALANCE OF PAYMENTS BALANCE SHEET BALANCE SHEET EFFECTS BANK FOR INTERNATIONAL SETTLEMENTS BANK RESERVES BANKING CRISES BANKING SECTOR BID CAPITAL FLIGHT CAPITAL FLOWS CENTRAL BANK COMMISSIONS CONTINGENT LIABILITIES CONTINGENT LIABILITY DEBT DEVALUATION DEVELOPED COUNTRIES DIRECT INVESTMENT DISEQUILIBRIUM ECONOMETRIC ANALYSIS ECONOMIC ACTIVITY ELASTICITY EMERGING MARKETS EMPIRICAL EVIDENCE EMPLOYMENT EQUATIONS EXCESS DEMAND EXCHANGE RATE EXCHANGE RATES EXPROPRIATION EXTERNAL FINANCING FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SECTOR FLOW OF CAPITAL FORECASTS FOREIGN ASSETS FOREIGN BANKS FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN INVESTORS GDP IMPERFECT INFORMATION INCOME INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LATIN AMERICAN LEADING INDICATORS LENDER OF LAST RESORT LIBERALIZATION LIQUIDITY M2 MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL PRODUCT MAXIMUM LIKELIHOOD ESTIMATION MONETARY AUTHORITIES MONETARY POLICY MONEY SUPPLY MORAL HAZARD NATIONAL OUTPUT PENALTIES POLICY INSTRUMENTS PORTFOLIO PROBABILITY OF DEFAULT PRODUCTIVITY PROFIT RATE PUBLIC DEBT PURCHASE PRICE PURCHASING POWER RANDOM WALK REAL GDP REAL WAGES RECESSION RESERVE RESERVE ASSETS RESERVE BANK OF AUSTRALIA RISK OF DEFAULT RISK PREMIUM STOCK PRICES SUSTAINABILITY WAGES
Online Access:	http://documents.worldbank.org/curated/en/2005/06/5866215/insurance-liquidity-panel-evidence http://hdl.handle.net/10986/8304

id	okr-10986-8304
recordtype	oai_dc
spelling	okr-10986-83042021-04-23T14:02:43Z Insurance and Liquidity : Panel Evidence Shankar, Rashmi AGENTS ASSETS BALANCE OF PAYMENTS BALANCE SHEET BALANCE SHEET EFFECTS BANK FOR INTERNATIONAL SETTLEMENTS BANK RESERVES BANKING CRISES BANKING SECTOR BID CAPITAL FLIGHT CAPITAL FLOWS CENTRAL BANK COMMISSIONS CONTINGENT LIABILITIES CONTINGENT LIABILITY DEBT DEVALUATION DEVELOPED COUNTRIES DIRECT INVESTMENT DISEQUILIBRIUM ECONOMETRIC ANALYSIS ECONOMIC ACTIVITY ELASTICITY EMERGING MARKETS EMPIRICAL EVIDENCE EMPLOYMENT EQUATIONS EXCESS DEMAND EXCHANGE RATE EXCHANGE RATES EXPROPRIATION EXTERNAL FINANCING FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SECTOR FLOW OF CAPITAL FORECASTS FOREIGN ASSETS FOREIGN BANKS FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN INVESTORS GDP IMPERFECT INFORMATION INCOME INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LATIN AMERICAN LEADING INDICATORS LENDER OF LAST RESORT LIBERALIZATION LIQUIDITY M2 MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL PRODUCT MAXIMUM LIKELIHOOD ESTIMATION MONETARY AUTHORITIES MONETARY POLICY MONEY SUPPLY MORAL HAZARD NATIONAL OUTPUT PENALTIES POLICY INSTRUMENTS PORTFOLIO PROBABILITY OF DEFAULT PRODUCTIVITY PROFIT RATE PUBLIC DEBT PURCHASE PRICE PURCHASING POWER RANDOM WALK REAL GDP REAL WAGES RECESSION RESERVE RESERVE ASSETS RESERVE BANK OF AUSTRALIA RISK OF DEFAULT RISK PREMIUM STOCK PRICES SUSTAINABILITY WAGES The author presents evidence that balance sheet effects are critical determinants of both the likelihood of a crisis and of income losses following a crisis. She tests the validity of "insurance" and "liquidity" models of currency crisis. Both models predict that the occurrence of a balance of payments crisis is conditional on the health of the nation's accounts in relation to the rest of the world. Problems in the balance sheet either cause a financial crisis that develops into a run on the central bank, or generate a run on the central bank once contingent liabilities exceed reserves and the yield differential moves against domestic assets. Estimations of crisis likelihoods based on several specifications of single and simultaneous equation probit models confirm that output losses following the crisis are persistent and conditional on the balance sheet indicator, that is, the ratio of the stock of gross external liabilities to assets. Measures of contingent liabilities, capital flight, and financial depth perform well as crisis predictors, and the marginal effects on the probability of a crisis are of the expected sign. The panel data set covers the time period 1973 through 2003 for 90 countries. 2012-06-18T18:31:25Z 2012-06-18T18:31:25Z 2005-06 http://documents.worldbank.org/curated/en/2005/06/5866215/insurance-liquidity-panel-evidence http://hdl.handle.net/10986/8304 English Policy Research Working Paper; No. 3648 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC 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
topic	AGENTS ASSETS BALANCE OF PAYMENTS BALANCE SHEET BALANCE SHEET EFFECTS BANK FOR INTERNATIONAL SETTLEMENTS BANK RESERVES BANKING CRISES BANKING SECTOR BID CAPITAL FLIGHT CAPITAL FLOWS CENTRAL BANK COMMISSIONS CONTINGENT LIABILITIES CONTINGENT LIABILITY DEBT DEVALUATION DEVELOPED COUNTRIES DIRECT INVESTMENT DISEQUILIBRIUM ECONOMETRIC ANALYSIS ECONOMIC ACTIVITY ELASTICITY EMERGING MARKETS EMPIRICAL EVIDENCE EMPLOYMENT EQUATIONS EXCESS DEMAND EXCHANGE RATE EXCHANGE RATES EXPROPRIATION EXTERNAL FINANCING FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SECTOR FLOW OF CAPITAL FORECASTS FOREIGN ASSETS FOREIGN BANKS FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN INVESTORS GDP IMPERFECT INFORMATION INCOME INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LATIN AMERICAN LEADING INDICATORS LENDER OF LAST RESORT LIBERALIZATION LIQUIDITY M2 MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL PRODUCT MAXIMUM LIKELIHOOD ESTIMATION MONETARY AUTHORITIES MONETARY POLICY MONEY SUPPLY MORAL HAZARD NATIONAL OUTPUT PENALTIES POLICY INSTRUMENTS PORTFOLIO PROBABILITY OF DEFAULT PRODUCTIVITY PROFIT RATE PUBLIC DEBT PURCHASE PRICE PURCHASING POWER RANDOM WALK REAL GDP REAL WAGES RECESSION RESERVE RESERVE ASSETS RESERVE BANK OF AUSTRALIA RISK OF DEFAULT RISK PREMIUM STOCK PRICES SUSTAINABILITY WAGES
spellingShingle	AGENTS ASSETS BALANCE OF PAYMENTS BALANCE SHEET BALANCE SHEET EFFECTS BANK FOR INTERNATIONAL SETTLEMENTS BANK RESERVES BANKING CRISES BANKING SECTOR BID CAPITAL FLIGHT CAPITAL FLOWS CENTRAL BANK COMMISSIONS CONTINGENT LIABILITIES CONTINGENT LIABILITY DEBT DEVALUATION DEVELOPED COUNTRIES DIRECT INVESTMENT DISEQUILIBRIUM ECONOMETRIC ANALYSIS ECONOMIC ACTIVITY ELASTICITY EMERGING MARKETS EMPIRICAL EVIDENCE EMPLOYMENT EQUATIONS EXCESS DEMAND EXCHANGE RATE EXCHANGE RATES EXPROPRIATION EXTERNAL FINANCING FEDERAL RESERVE SYSTEM FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL REFORM FINANCIAL REGULATION FINANCIAL SECTOR FLOW OF CAPITAL FORECASTS FOREIGN ASSETS FOREIGN BANKS FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN INVESTORS GDP IMPERFECT INFORMATION INCOME INFLATION INSURANCE INTEREST RATE INTEREST RATES INTERNATIONAL RESERVES LATIN AMERICAN LEADING INDICATORS LENDER OF LAST RESORT LIBERALIZATION LIQUIDITY M2 MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL PRODUCT MAXIMUM LIKELIHOOD ESTIMATION MONETARY AUTHORITIES MONETARY POLICY MONEY SUPPLY MORAL HAZARD NATIONAL OUTPUT PENALTIES POLICY INSTRUMENTS PORTFOLIO PROBABILITY OF DEFAULT PRODUCTIVITY PROFIT RATE PUBLIC DEBT PURCHASE PRICE PURCHASING POWER RANDOM WALK REAL GDP REAL WAGES RECESSION RESERVE RESERVE ASSETS RESERVE BANK OF AUSTRALIA RISK OF DEFAULT RISK PREMIUM STOCK PRICES SUSTAINABILITY WAGES Shankar, Rashmi Insurance and Liquidity : Panel Evidence
relation	Policy Research Working Paper; No. 3648
description	The author presents evidence that balance sheet effects are critical determinants of both the likelihood of a crisis and of income losses following a crisis. She tests the validity of "insurance" and "liquidity" models of currency crisis. Both models predict that the occurrence of a balance of payments crisis is conditional on the health of the nation's accounts in relation to the rest of the world. Problems in the balance sheet either cause a financial crisis that develops into a run on the central bank, or generate a run on the central bank once contingent liabilities exceed reserves and the yield differential moves against domestic assets. Estimations of crisis likelihoods based on several specifications of single and simultaneous equation probit models confirm that output losses following the crisis are persistent and conditional on the balance sheet indicator, that is, the ratio of the stock of gross external liabilities to assets. Measures of contingent liabilities, capital flight, and financial depth perform well as crisis predictors, and the marginal effects on the probability of a crisis are of the expected sign. The panel data set covers the time period 1973 through 2003 for 90 countries.
format	Publications & Research :: Policy Research Working Paper
author	Shankar, Rashmi
author_facet	Shankar, Rashmi
author_sort	Shankar, Rashmi
title	Insurance and Liquidity : Panel Evidence
title_short	Insurance and Liquidity : Panel Evidence
title_full	Insurance and Liquidity : Panel Evidence
title_fullStr	Insurance and Liquidity : Panel Evidence
title_full_unstemmed	Insurance and Liquidity : Panel Evidence
title_sort	insurance and liquidity : panel evidence
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2005/06/5866215/insurance-liquidity-panel-evidence http://hdl.handle.net/10986/8304
_version_	1764407588997300224

Insurance and Liquidity : Panel Evidence

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