NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis

Efraim Benmelech, Eyal Dvir

NBER Working Paper No. 17468
Issued in September 2011
NBER Program(s):   CF   EFG   IFM   ITI   ME

Does short-term debt increase vulnerability to financial crisis, or does short-term debt reflect -- rather than cause -- the incipient crisis? We study the role that short-term debt played in the collapse of the East Asian financial sector in 1997-1998. We alleviate concerns about the endogeneity of short-term debt by using long-term debt obligations that matured during the crisis. We find that debt obligations issued at least three years before the crisis had a negative, albeit sometimes insignificant, effect on the probability of failure. Our results are consistent with the view that short-term debt reflects, rather than causes, distress in financial institutions.

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Document Object Identifier (DOI): 10.3386/w17468

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