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Debt Intolerance

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  • Carmen M. Reinhart

    (International Monetary Fund)

  • Kenneth S. Rogoff

    (International Monetary Fund)

  • Miguel A. Savastano

    (International Monetary Fund)

Abstract

This paper introduces the concept of "debt intolerance," which manifests itself in the extreme duress many emerging market economies experience at levels of indebtedness that would seem manageable by advanced country standards. The paper argues that "safe" external debt-to-GNP thresholds for debt-intolerant countries depend on the country's default and inflation history and may be as low as 15 percent in some cases. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assessing the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. The paper makes a first pass at quantifying debt intolerance, including delineating debtors' "clubs" and regions of vulnerability, based on a history of credit events for a large number of countries going back to the 1820s.

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Bibliographic Info

Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 34 (2003)
Issue (Month): 1 ()
Pages: 1-74

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Handle: RePEc:bin:bpeajo:v:34:y:2003:i:2003-1:p:1-74

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Keywords: macroeconomics; Debt Intolerance;

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  2. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 594, China Economics and Management Academy, Central University of Finance and Economics.
  4. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 43-50, March.
  5. Easterly, William R., 1989. "Fiscal adjustment and deficit financing during the debt crisis," Policy Research Working Paper Series, The World Bank 138, The World Bank.
  6. John Williamson, 2002. "Is Brazil Next?," Policy Briefs, Peterson Institute for International Economics PB02-07, Peterson Institute for International Economics.
  7. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  8. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  9. Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
  10. Reinhart, Carmen & Reinhart, Vincent, 2003. "Twin fallacies about exchange rate policy in emerging markets," MPRA Paper 13874, University Library of Munich, Germany.
  11. Velasco, Andres, 1996. "Fixed exchange rates: Credibility, flexibility and multiplicity," European Economic Review, Elsevier, Elsevier, vol. 40(3-5), pages 1023-1035, April.
  12. Christopher A. Sims, 2001. "Fiscal consequences for Mexico of adopting the dollar," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 597-625.
  13. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, American Economic Association, vol. 83(4), pages 953-63, September.
  14. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 46, July.
  15. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries," IMF Occasional Papers, International Monetary Fund 220, International Monetary Fund.
  16. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2006. "Financial Globalization," IMF Working Papers, International Monetary Fund 06/189, International Monetary Fund.
  17. Peter Montiel & Samir Jahjah, 2003. "Exchange Rate Policy and Debt Crises in Emerging Economies," IMF Working Papers, International Monetary Fund 03/60, International Monetary Fund.
  18. Bulow, Jeremy & Rogoff, Kenneth, 1990. "Cleaning Up Third World Debt without Getting Taken to the Cleaners," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(1), pages 31-42, Winter.
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