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Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten

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  • Carmen Reinhart
  • Kenneth Rogoff

Abstract

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial Repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/266.

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Length: 21
Date of creation: 24 Dec 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/266

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Keywords: Financial crisis; Sovereign debt; Debt conversion; Debt restructuring; External debt; Public debt; Inflation; Economic growth; Developed countries; Emerging markets; Financial crises; sovereign debt crises; deleveraging; credit cycles; financial repression; domestic debt; government debt; debt overhang; debt reduction; sovereign default; debt forgiveness; debt overhangs; private debt; currency debt; debt crisis; sovereign defaults; private sector debt; public debt management; net debt; domestic currency; reserve bank; debt burdens; total external debt; debt default; debt relief; debt statistics; debt data; foreign debt; debt defaults; debt obligations; market debt; debt stocks; debt public; debt conversions; domestic public debt; national debt; debtor countries; international lending; debt problem; debt intolerance; external debt statistics; debt sustainability; balance of payments;

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References

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  1. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," BIS Working Papers 363, Bank for International Settlements.
  2. Michael Reddell, 2012. "The New Zealand Debt Conversion Act 1933: a case study in coercive domestic public debt restructuring," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 75, pages 38-45, March.
  3. Robert J. Barro & José F. Ursúa, 2009. "Stock-Market Crashes and Depressions," NBER Working Papers 14760, National Bureau of Economic Research, Inc.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Banking Crises: An Equal Opportunity Menace," NBER Working Papers 14587, National Bureau of Economic Research, Inc.
  5. Jeffrey Frankel & Jesse Schreger, . "Over-optimistic official forecasts and fiscal rules in the eurozone," Working Paper 83126, Harvard University OpenScholar.
  6. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, Elsevier, vol. 19(1-2), pages 1-24.
  7. Smits, J.-P. & Woltjer, P. & Ma, D., 2009. "A Dataset on Comparative Historical National Accounts, ca.1870-1950: A Time-Series Perspective," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-107, Groningen Growth and Development Centre, University of Groningen.
  8. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(3), pages 69-86, Summer.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Le rôle des banques centrales lors du cycle financier selon Claudio Borio
    by ? in D'un champ l'autre on 2014-02-17 16:58:00
  2. Alimenter l’inflation pour réduire la dette publique ?
    by ? in D'un champ l'autre on 2014-06-14 17:29:00
  3. L’Europe peut-elle compter sur de larges excédents primaires pour résoudre ses problèmes d’endettement ?
    by ? in D'un champ l'autre on 2014-07-22 23:58:00
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Cited by:
  1. Barry Eichengreen & Ugo Panizza, 2014. "A Surplus of Ambition: Can Europe Rely on Large Primary Surpluses to Solve its Debt Problem?," NBER Working Papers 20316, National Bureau of Economic Research, Inc.
  2. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Stijn Claessens & M. Ayhan Kose & Luc Laeven & Fabián Valencia, 2013. "Understanding Financial Crises: Causes, Consequences, and Policy Responses," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1301, Koc University-TUSIAD Economic Research Forum.
  4. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Review and Evidence," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(3), pages 1-23.

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