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Output costs of sovereign crises: some empirical estimates

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Author Info

  • De Paoli, Bianca

    ()
    (Bank of England)

  • Hoggarth, Glenn

    ()
    (Bank of England)

  • Saporta, Victoria

    ()
    (Bank of England)

Abstract

Avoiding the broader output losses to their economy is likely to be the key reason why governments avoid debt crises. Despite this, there has been little work that seeks to quantify output losses associated with such crises. This paper seeks to fill this gap. We find that debt crisis episodes last for long - on average by about ten years - and are associated with large output losses (of at least 5% per year). Sovereign crises rarely occur in isolation - more often than not they are associated with currency crises or banking crises or both. It is the occurrence of a potent cocktail of 'twin' or 'triple' crises that is strongly associated with output losses rather than sovereign crisis per se.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 362.

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Length: 32 pages
Date of creation: 16 Feb 2009
Date of revision:
Handle: RePEc:boe:boeewp:0362

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Keywords: Sovereign debt; output losses; banking crises; currency crises;

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References

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Citations

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Cited by:
  1. Furceri, Davide & Zdzienicka, Aleksandra, 2011. "How costly are debt crises?," MPRA Paper 30953, University Library of Munich, Germany.
  2. Broner, Fernando A & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio, 2011. "Gross Capital Flows: Dynamics and Crises," CEPR Discussion Papers 8591, C.E.P.R. Discussion Papers.
  3. Uhrig-Homburg, Marliese, 2013. "Sovereign credit spreads," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4217-4225.
  4. König, Philipp & Anand, Kartik & Heinemann, Frank, 2013. "The ‘Celtic Crisis’: Guarantees, transparency, and systemic liquidity risk," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79747, Verein für Socialpolitik / German Economic Association.
  5. Eyigungor, Burcu, 2013. "Debt dilution: when it is a major problem and how to deal with it," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-8.
  6. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950-2010," IMF Working Papers 12/203, International Monetary Fund.
  7. Marcello Bofondi & Luisa Carpinelli & Enrico Sette, 2013. "Credit supply during a sovereign debt crisis," Temi di discussione (Economic working papers) 909, Bank of Italy, Economic Research and International Relations Area.
  8. Qian, Rong, 2012. "Why do some countries default more often than others ? the role of institutions," Policy Research Working Paper Series 5993, The World Bank.
  9. Jasper Lukkezen & Hugo Rojas-Romagosa, 2012. "When is debt sustainable?," CPB Discussion Paper 212, CPB Netherlands Bureau for Economic Policy Analysis.

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