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The Elusive Costs of Sovereign Defaults Author info | Abstract | Publisher info | Download info | Related research | Statistics Ugo Panizza
Eduardo Levy Yeyati
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Few would dispute that sovereign defaults entail significant economic costs, including, most notably, important output losses. However, most of the evidence supporting this conventional wisdom, based on annual observations, suffers from serious measurement and identification problems. To address these drawbacks, we examine the impact of default on growth by looking at quarterly data for emerging economies. We find that, contrary to what is typically assumed, output contractions precede defaults. Moreover, we find that the trough of the contraction coincides with the quarter of default, and that output starts to grow thereafter, indicating that default episode seems to mark the beginning of the economic recovery rather than a further decline. This suggests that, whatever negative effects a default may have on output, those effects result from anticipation of a default rather than the default itself.
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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number
4485.
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Date of creation: Nov 2006Date of revision:
Handle: RePEc:idb:wpaper:4485Contact details of provider: Postal: 1300 New York Avenue, NW, Washington, DC 20577 Phone: 202-623-1000 Email: Web page: http://www.iadb.org/res More information through EDIRC
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Eduardo Borensztein & Ugo Panizza, 2006.
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repec:bep:glecon:7:2007:2:2 is not listed on IDEAS
Enrique G. Mandoza & Vivian Z. Yue, 2008.
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[Downloadable!]
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RES Working Papers
4447, Inter-American Development Bank, Research Department.
[Downloadable!]
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