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The elusive costs of sovereign defaults

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  • Yeyati, Eduardo Levy
  • Panizza, Ugo

Abstract

The evidence supporting the presence of output losses associated with sovereign defaults is based on annual observations and suffers from measurement and identification problems. This paper examines the impact of default on growth using quarterly data and finds that output contractions precede defaults and that output starts growing after the quarter in which the default took place. This indicates that default episodes mark the beginning of the economic recovery and that the negative effects of a default on output are likely to be driven by the anticipation of default, independently of whether or not the country ultimately decides to validate it.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 94 (2011)
Issue (Month): 1 (January)
Pages: 95-105

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Handle: RePEc:eee:deveco:v:94:y:2011:i:1:p:95-105

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Sovereign debt Default Country risk Growth;

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References

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  1. Mark Aguiar & Gita Gopinath, 2004. "Defaultable Debt, Interest Rates and the Current Account," NBER Working Papers 10731, National Bureau of Economic Research, Inc.
  2. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
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  9. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. ¿Cuánto le cuesta el default a Argentina?
    by ELY in Blog de Eduardo Levy Yeyati on 2011-12-06 14:28:00
  2. Boden 15 vs. Boden griego
    by ELY in Blog de Eduardo Levy Yeyati on 2010-04-27 22:43:00
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