TY  - JOUR
AU  - Broner,Fernando A.
AU  - Lorenzoni,Guido
AU  - Schmukler,Sergio L.
TI  - Why Do Emerging Economies Borrow Short Term?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13076
PY  - 2007
Y2  - May 2007
UR  - http://www.nber.org/papers/w13076
L1  - http://www.nber.org/papers/w13076.pdf
N1  - Author contact info:
Fernando Broner
CREI and Universitat Pompeu Fabra
Ramon Trias Fargas, 25-27
08005 Barcelona
Spain
Tel: +34-935422601
Fax: +34-935421860
E-Mail: fbroner@crei.cat

Guido Lorenzoni
MIT Department of Economics
E52-251C
50 Memorial Drive
Cambridge, MA 02142-1347
Tel: 617/253-4836
Fax: 617/253-1330
E-Mail: glorenzo@mit.edu

Sergio Schmukler
The World Bank
MSN MC3-301
1818 H Street, N.W.
Washington, DC 20433
Tel: 202-458-4167
Fax: 202-522-3518
E-Mail: Sschmukler@worldbank.org
AB  - We argue that emerging economies borrow short term due to the high risk premium charged by bondholders on long-term debt. First, we 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 rollover crisis, transferring risk to bondholders. In equilibrium, this risk is reflected in a higher risk premium and borrowing cost. Therefore, the government faces a trade-off between safer long-term debt and cheaper short-term debt. Second, we construct a new database of sovereign bond prices and issuance. We 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 towards shorter maturities. The evidence suggests that international investors' time-varying risk aversion is crucial to understand the debt structure in emerging economies.
ER  -