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The Costs of Sovereign Default

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  • Eduardo Borensztein
  • Ugo Panizza

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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Bibliographic Info

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

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Length: 50
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/238

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Keywords: Sovereign debt; Public debt; External debt; Financial risk; Bankruptcy; banking; banking crises; banking crisis; sovereign default; bank loans; sovereign defaults; short term debt; probability of default; debt service; current account balance; current account; debt defaults; debt restructuring; borrowing cost; debt crisis; debt default; sovereign bonds; currency crises; central bank; debt crises; external debt service; banking system; concessional debt; government debt; currency crisis; debt renegotiations; bank lending; commercial creditors; external finance; private debts; bank run; banking sector; debt overhang; sovereign borrowers; private credit; bank credit; bank currency; domestic currency; debt sustainability; recapitalization; long term debt; banks ? balance sheet; sovereign bond; bank of england; negotiable instrument; bank debt; external obligations; reserve bank; bank loan; banks loans; bank liquidity; currency debt; bank policy; commercial debt; bank runs; sovereign debt crises; sovereign debtors; debt intolerance; debt default episodes; debt outstanding; external financing; bankers; sovereign risk; international lending; debt contract; banks ? balance sheets;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Cost of default on sovereign debt
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