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 govern...

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Hauptverfasser:	Broner, Fernando 1970- (VerfasserIn), Lorenzoni, Guido (VerfasserIn), Schmukler, Sergio L. (VerfasserIn)
Format:	Buch
Sprache:	English
Veröffentlicht:	Cambridge, Mass. National Bureau of Economic Research 2007
Schriftenreihe:	Working paper series / National Bureau of Economic Research 13076
Online-Zugang:	Volltext
Zusammenfassung:	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.
Beschreibung:	41, [22] S. graph. Darst. 22 cm