Title

Bonds or Loans? The Effect of Macroeconomic Fundamentals

Authors

Galina Hale

Document Type

Discussion Paper

Publication Date

2-1-2003

CFDP Number

1403

CFDP Revision Date

2005-09-01

CFDP Pages

53

Abstract

The costs of debt crises are not invariant to the foreign debt instrument composition: bank loans or bonds. The lending boom of the 1990s witnessed considerable variation over time and across countries in the debt instrument used by emerging market (EM) borrowers. This paper tests how macroeconomic fundamentals affect the composition of international debt instruments used by EM borrowers. Analysis of micro-level data using ordered probability model shows that macroeconomic fundamentals explain a significant share of variation in the ratio of bonds to loans for private borrowers, but not for the sovereigns.

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