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The Politics Of Debt Crises

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  • Van Rijckeghem, Caroline
  • Weder di Mauro, Beatrice

Abstract

This paper shows that politics matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a nonparametric technique to predict safety from default. The advantage of this technique is that it is able to identify complementarities that are not captured in standard probit analysis. We find that political factors matter, and do so in different ways for democratic and non-democratic regimes, and for domestic and external debt. Moreover we find that there is an important complementarity between political and economic conditions, which is essential in explaining the incidence of default.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4683.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4683

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Related research

Keywords: early warning systems; political institutions; sovereign debt crises;

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References

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  1. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-Fulfilling Debt Crises," Levine's Working Paper Archive 114, David K. Levine.
  2. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1999. "Prospective deficits and the asian currency crisis," Policy Research Working Paper Series 2174, The World Bank.
  3. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market," IMF Working Papers 96/38, International Monetary Fund.
  4. Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," NBER Working Papers 8853, National Bureau of Economic Research, Inc.
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  8. Roberto Chang, 2006. "Electoral Uncertainty and the Volatility of International Capital Flows," NBER Working Papers 12448, National Bureau of Economic Research, Inc.
  9. Amadou N. R. Sy & Andrea Pescatori, 2004. "Debt Crises and the Development of International Capital Markets," IMF Working Papers 04/44, International Monetary Fund.
  10. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  11. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  12. Roberto Chang, 2005. "Financial Crises and Political Crises," NBER Working Papers 11779, National Bureau of Economic Research, Inc.
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  15. Christian B. Mulder & Matthieu Bussière, 1999. "Political Instability and Economic Vulnerability," IMF Working Papers 99/46, International Monetary Fund.
  16. Kent Osband & Caroline Van Rijckeghem, 2000. "Safety from Currency Crashes," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 4.
  17. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  18. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  19. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 545-570, September.
  20. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  21. Cole, Harold L. & Kehoe, Timothy J., 1996. "A self-fulfilling model of Mexico's 1994-1995 debt crisis," Journal of International Economics, Elsevier, vol. 41(3-4), pages 309-330, November.
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Citations

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Cited by:
  1. Kohlscheen, E, 2009. "Domestic vs. External Sovereign Debt Servicing : An Empirical Analysis," The Warwick Economics Research Paper Series (TWERPS) 904, University of Warwick, Department of Economics.
  2. Waldenström, Daniel, 2006. "Why Does Sovereign Risk Differ for Domestic and Foreign Investors? Evidence from Scandinavia, 1938­­–1948," Working Paper Series 677, Research Institute of Industrial Economics.
  3. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2008. "Heterogeneous borrowers in quantitative models of sovereign default," Working Paper 07-01, Federal Reserve Bank of Richmond.
  4. Trebesch, Christoph, 2008. "Delays in Sovereign Debt Restructurings. Should we really blame the creditors?," Proceedings of the German Development Economics Conference, Zurich 2008 44, Verein für Socialpolitik, Research Committee Development Economics.
  5. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2007. "The economics of sovereign defaults," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 163-187.
  6. Moser, Christoph, 2007. "The Impact of Political Risk on Sovereign Bond Spreads - Evidence from Latin America," Proceedings of the German Development Economics Conference, Göttingen 2007 24, Verein für Socialpolitik, Research Committee Development Economics.
  7. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2010. "International Government Debt," UNCTAD Discussion Papers 199, United Nations Conference on Trade and Development.
  8. Cuadra, Gabriel & Sapriza, Horacio, 2008. "Sovereign default, interest rates and political uncertainty in emerging markets," Journal of International Economics, Elsevier, vol. 76(1), pages 78-88, September.
  9. Agliardi, Elettra & Agliardi, Rossella & Pinar, Mehmet & Stengos, Thanasis & Topaloglou, Nikolas, 2012. "A new country risk index for emerging markets: A stochastic dominance approach," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 741-761.
  10. Raffaela Giordano & Pietro Tommasino, 2009. "What determines debt intolerance? The role of political and monetary institutions," Temi di discussione (Economic working papers) 700, Bank of Italy, Economic Research and International Relations Area.
  11. Celasun, Oya & Harms, Philipp, 2008. "Boon or Burden? The Effect of Private Sector Debt on the Risk of Sovereign Default in Developing Countries," Proceedings of the German Development Economics Conference, Zurich 2008 16, Verein für Socialpolitik, Research Committee Development Economics.

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