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Systemic and Idiosyncratic Sovereign Debt Crises

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  • Graciela Laura Kaminsky
  • Pablo Vega-García

Abstract

The theoretical literature on sovereign defaults has focused on adverse shocks to debtors' economies, suggesting that defaults are of an idiosyncratic nature. Still, sovereign debt crises are also of a systemic nature, clustered around panics in the financial center, such as the European Sovereign Debt Crisis in the aftermath of the US Subprime Crisis in 2008. Crises in the financial centers are rare disasters and, thus, their effects on the periphery can only be captured by examining long episodes. In this paper, we examine sovereign defaults from 1820 to the Great Depression, with a focus on Latin America. We find that 63% of the crises are of a systemic nature. These crises are different. Both the international collapse of liquidity and the growth slowdown in the financial centers are at their core. These global shocks trigger longer default spells and larger losses for investors.

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  • Graciela Laura Kaminsky & Pablo Vega-García, 2016. "Systemic and Idiosyncratic Sovereign Debt Crises," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 80-114.
  • Handle: RePEc:oup:jeurec:v:14:y:2016:i:1:p:80-114.
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    File URL: http://hdl.handle.net/10.1111/jeea.12165
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    5. Kaminsky, Graciela, 2017. "The Center and the Periphery: Two Hundred Years of International Borrowing Cycles," MPRA Paper 82125, University Library of Munich, Germany.
    6. Josefin Meyer & Carmen M Reinhart & Christoph Trebesch, 2022. "Sovereign Bonds Since Waterloo," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1615-1680.
    7. Johri, Alok & Khan, Shahed & Sosa-Padilla, César, 2022. "Interest rate uncertainty and sovereign default risk," Journal of International Economics, Elsevier, vol. 139(C).
    8. Antonio Bassanetti & Carlo Cottarelli & Andrea F Presbitero, 2019. "Lost and found: market access and public debt dynamics," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 445-471.
    9. Carmen M. Reinhart, 2022. "From Health Crisis to Financial Distress," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(1), pages 4-31, March.
    10. Carmen M. Reinhart & Christoph Trebesch, 2015. "The Pitfalls of External Dependence: Greece, 1829–2015," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 307-328.
    11. Graf Von Luckner, Clemens & Meyer, Josefin & Reinhart, Carmen & Trebesch, Christoph, 2021. "External sovereign debt restructurings: Delay and replay," MPRA Paper 117470, University Library of Munich, Germany, revised 30 Mar 2021.
    12. Anastasios Petropoulos & Vasilis Siakoulis & Evangelos Stavroulakis, 2022. "Towards an early warning system for sovereign defaults leveraging on machine learning methodologies," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 29(2), pages 118-129, April.
    13. Serhan Cevik & João Tovar Jalles, 2022. "An Apocalypse Foretold: Climate Shocks and Sovereign Defaults," Open Economies Review, Springer, vol. 33(1), pages 89-108, February.
    14. Carmen M. Reinhart & Franziska L. Ohnsorge & Kenneth S. Rogoff & M. Ayhan Kose, 2022. "The Aftermath of Debt Surges," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 637-663, August.
    15. Eberhardt, Markus, 2018. "(At Least) Four Theories for Sovereign Default," CEPR Discussion Papers 13084, C.E.P.R. Discussion Papers.
    16. Tamás Kristóf, 2021. "Sovereign Default Forecasting in the Era of the COVID-19 Crisis," JRFM, MDPI, vol. 14(10), pages 1-24, October.
    17. Tamon Asonuma & Hyungseok Joo, 2021. "Public Capital and Fiscal Constraint in Sovereign Debt Crises," School of Economics Discussion Papers 0621, School of Economics, University of Surrey.
    18. Bordo, M.D. & Meissner, C.M., 2016. "Fiscal and Financial Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 355-412, Elsevier.
    19. Tamon Asonuma & Hyungseok Joo, 2023. "Sovereign Defaults and Debt Restructurings: Public Capital and Fiscal Constraint Tightness," School of Economics Discussion Papers 0323, School of Economics, University of Surrey.
    20. Angélica Domínguez-Cardoza & Adelina Garamow & Josefin Meyer, 2022. "Global Commodity Markets and Sovereign Risk across 150 Years," Discussion Papers of DIW Berlin 2020, DIW Berlin, German Institute for Economic Research.
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    22. Ricardo Sabbadini, 2018. "Loss Aversion and Search for Yield in Emerging Markets Sovereign Debt," Working Papers, Department of Economics 2018_16, University of São Paulo (FEA-USP).
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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F30 - International Economics - - International Finance - - - General
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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