Arbeitspapier
Currency mismatch, uncertainty and debt maturity structure
The academic literature has so far little to say about the underlying causes of the large structural asset and liability imbalances of emerging markets that frequently contributed to financial crises. The aim of the paper is to contribute to filling this gap by proposing a theoretical model that links currency and maturity mismatches with real volatility in the economy. We show that if (i) a significant share of the debt is denominated in foreign currency-creating a currency mismatch- and (ii) borrowing is constrained by solvency, then currency mismatch can create and exacerbate a maturity mismatch. An important feature of the model is that higher economic or political uncertainty tightens solvency constraints and tilts the debt profile towards short term debt, thereby increasing the volatility of output. Taking the model implications to the data, we find empirical support for the model’s predictions using data for 28 emerging market economies.
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 409
- Classification
-
Wirtschaft
International Lending and Debt Problems
Financial Aspects of Economic Integration
- Subject
-
currency mismatch
debt
emerging markets
Maturity mismatch
uncertainty
- Event
-
Geistige Schöpfung
- (who)
-
Bussière, Matthieu
Fratzscher, Marcel
Koeniger, Winfried
- Event
-
Veröffentlichung
- (who)
-
European Central Bank (ECB)
- (where)
-
Frankfurt a. M.
- (when)
-
2004
- Handle
- Last update
-
10.03.2025, 11:46 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Bussière, Matthieu
- Fratzscher, Marcel
- Koeniger, Winfried
- European Central Bank (ECB)
Time of origin
- 2004
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