Three sisters: The interlinkage between sovereign debt, currency, and banking crises

This study analyzes the interlinkage between sovereign debt, currency, and banking crises by applying panel data probit and multivariate probit models to a sample of 21 emerging economies observed monthly between 1985 and 2020. The results establish the simultane-ity of the three crises in a given month, where banking, sovereign debt, and currency crises tend to occur jointly caused by common unobservable factors. The results also indicate that banking crises usually precede sovereign defaults, but not vice versa. Indirect effects sug-gest that short-term external indebtedness during banking crises, and misaligned exchange rates corrected by currency crises increase the future sovereign default likelihood.(c) 2022 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).