AbstractThis paper introduces the concept of debt intolerance,' which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. We argue that safe' external debt-to-GNP thresholds for debt intolerant countries are low, perhaps as low as 15 percent in some cases. These thresholds depend on a country's default and inflation history. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assess the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. Our goal is to make a first pass at quantifying debt intolerance, including delineating debtors' clubs and regions of vulnerability, on the basis on a history of credit events going back to the 1820s for over 100 countries.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9908.
Date of creation: Aug 2003
Date of revision:
Publication status: published as Reinhart, Carmen M., Kenneth S. Rogoff and Miguel A. Savastano. "Debt Intolerance," Brookings Papers on Economic Activity, 34, 2003-1 (2003): 1-74.
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Web page: http://www.nber.org
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Other versions of this item:
- F3 - International Economics - - International Finance
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-08-17 (All new papers)
- NEP-CBA-2003-08-17 (Central Banking)
- NEP-FIN-2003-08-17 (Finance)
- NEP-RMG-2003-08-17 (Risk Management)
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