Debts, International Reserves, and Financial Crises
Keywords:
Financial Crises, Currency Crisis, Debt Crisis, Banking Crisis, Debts, International ReservesAbstract
This research aims to investigate the relationships among debts, international reserves, and financial crises in emerging markets and developing economies. The financial crisis can be divided into three different categories: currency crisis, debt crisis, and banking crisis. This research is a quantitative study using the logit model to examine the effects of debts and international reserves on the probability of financial crisis. This study uses panel data on 36 countries in emerging markets and developing economies from 1980 to 2018. The results indicate that both public and private debts in emerging markets and developing economies have increased significantly. In addition, many countries that had experienced the Asian financial crisis during 1997-1998 tried to build up their international reserves as liquid assets to protect their currency and reduce the severity of currency attacks. The findings of this study also suggest that the accumulation of central government debt is associated with an increased likelihood of a currency crisis, while the accumulation of international reserves can act as a buffer against currency crises and debt crises. Therefore, governments should maintain their debts and international reserves at optimal levels to reduce the risk of future financial crises.
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