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Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 994:
Determinants of Short-Term Debt

Claudia M. Buch and Lusine Lusinyan

Abstract: One key focus of the on-going debate on the integration of international financial markets have been measures to lengthen the maturity of foreign debt. Short-term debt is typically considered to be volatile and thus a potential trigger of currency crises. In contrast to the vivid policy debate on these issues, there is relatively little theoretical and empirical evidence on the determinants of short-term debt. This paper summarizes the theoretical literature on the issue and presents a stylized theoretical model, which focuses on the risks and benefits of short-term debt under conditions of uncertainty. Empirical evidence shows that the level of economic development, the presence of financial centres, and the share of loans to banks have a positive impact on the share of short-term loans. OECD membership, in contrast, has a negative influence.

29 pages, July 2000

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