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The Costs of Sovereign Default

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Author Info
Ugo Panizza
Eduardo Borensztein

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Abstract

This paper evaluates empirically four types of cost that may result from an international sovereign default: reputational costs, international trade exclusion costs, costs to the domestic economy through the financial system, and political costs to the authorities. It finds that the economic costs are generally significant but short-lived, and sometimes do not operate through conventional channels. The political consequences of a debt crisis, by contrast, seem to be particularly dire for incumbent governments and finance ministers, broadly in line with what happens in currency crises.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/238.

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Length: 50 pages
Date of creation: 07 Oct 2008
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Handle: RePEc:imf:imfwpa:08/238

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Keywords: Sovereign debt ; Public debt ; External debt ; Financial risk ; Financial crisis ; Political economy ; International trade ; Bankruptcy ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies: How Much is thePrivate Sector Affected?," IMF Working Papers 09/29, International Monetary Fund. [Downloadable!]
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