TY  - JOUR
AU  - Fukuda, Shin-ichi
AU  - Kon, Yoshifumi
TI  - Liquidity Risk Aversion, Debt Maturity, and Current Account Surpluses: A Theory and Evidence from East Asia
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13004
PY  - 2007
Y2  - April 2007
DO  - 10.3386/w13004
UR  - http://www.nber.org/papers/w13004
L1  - http://www.nber.org/papers/w13004.pdf
N1  - Author contact info:
Shin-ichi Fukuda
Faculty of Economics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033, JAPAN
Fax: 81-3-5841-5521
E-Mail: sfukuda@e.u-tokyo.ac.jp

Yoshifumi Kon
Graduate School of Economics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033, JAPAN
E-Mail: ee57014@mail.ecc.u-tokyo.ac.jp
M1  - published as Shin-ichi Fukuda, Yoshifumi Kon. "Liquidity Risk Aversion, Debt Maturity, and Current Account Surpluses: A Theory and Evidence from East Asia," in Takatoshi Ito and Andrew K. Rose, editors, "International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy" University of Chicago Press (2008)

M3  - presented at "East Asian Seminar on Economics", June 22-24, 2006
AB  - The purpose of this paper is to show that macroeconomic impacts might be very different depending on what strategy developing countries will take.  In the first part, we investigate what macroeconomic impacts an increased aversion to liquidity risk can have in a simple open economy model.  When the government keeps foreign reserves constant, an increased aversion to liquidity risk reduces liquid debt and increases illiquid debt.  However, its macroeconomic impacts are not large, causing only small current account surpluses.  In contrast, when the government responds to the shock, the changed aversion increases foreign reserves and may lead to a rise of liquidity debt.  In particular, under some reasonable parameter set, it causes large macroeconomic impacts, including significant current account surpluses.  In the second part, we provide several empirical supports to the implications.  In particular, we explore how foreign debt maturity structures changed in East Asia.  We find that many East Asian economies reduced short-term borrowings temporarily after the crisis but increased short-term borrowings in the early 2000s.  We discuss that our results have important implications for the recent deterioration in the U.S. current account.
ER  -