IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Do Countries Default in "Bad Times" ?

  • Michael Tomz
  • Mark L. J. Wright

This paper uses a new dataset to study the relationship between economic output and sovereign default for the period 1820--2004. We find a negative but surprisingly weak relationship between economic output in the borrowing country and default on loans from private foreign creditors. Throughout history, countries have indeed defaulted during bad times (when output was relatively low), but they have also suspended payments when the domestic economy was favorable, and they have maintained debt service in the face of adverse shocks. This constitutes a puzzle for standard theories of international debt, which predict a much tighter negative relationship as default provides partial insurance against declines in output. (JEL: F21, F34, F41) (c) 2007 by the European Economic Association.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1542-4774/issues
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 5 (2007)
Issue (Month): 2-3 (04-05)
Pages: 352-360

as
in new window

Handle: RePEc:tpr:jeurec:v:5:y:2007:i:2-3:p:352-360
Contact details of provider: Web page: http://www.mitpressjournals.org/jeea

Order Information: Web: http://www.mitpressjournals.org/jeea

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.:

as in new window
  1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  2. Yousef, Tarik M, 2002. "Egypt's Growth Performance under Economic Liberalism: A Reassessment with New GDP Estimates, 1886-1945," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(4), pages 561-79, December.
  3. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
  4. Mark Aguiar & Gita Gopinath, 2004. "Defaultable debt, interest rates, and the current account," Working Papers 04-5, Federal Reserve Bank of Boston.
  5. Max-Stephan Schulze, 2000. "Patterns of growth and stagnation in the late nineteenth century Habsburg economy," LSE Research Online Documents on Economics 4370, London School of Economics and Political Science, LSE Library.
  6. Schulze, Max-Stephan, 2000. "Patterns of growth and stagnation in the late nineteenth century Habsburg economy," European Review of Economic History, Cambridge University Press, vol. 4(03), pages 311-340, December.
  7. Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," IDB Publications (Working Papers) 6713, Inter-American Development Bank.
  8. Cooley, T.F. & Ohanian, L.E., 1989. "The Cyclical Behavior Of Prices," RCER Working Papers 188, University of Rochester - Center for Economic Research (RCER).
  9. Vivian Z. Yue, 2005. "Sovereign Default and Debt Renegotiation," 2005 Meeting Papers 138, Society for Economic Dynamics.
  10. Don Harding & Adrian Pagan, 1999. "Dissecting the Cycle," Melbourne Institute Working Paper Series wp1999n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  11. World Bank, 2006. "World Development Indicators 2006," World Bank Publications, The World Bank, number 8151, March.
  12. Rohan Pitchford & Mark Wright, 2006. "Sovereign debt, default and renegotiation," 2006 Meeting Papers 331, Society for Economic Dynamics.
  13. Mark L. J. Wright & Rohan Pitchford, 2008. "Restructuring the Sovereign Debt Restructuring Mechanism," 2008 Meeting Papers 147, Society for Economic Dynamics.
  14. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
  15. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  16. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
  17. repec:dgr:kubcen:199750 is not listed on IDEAS
  18. Agustín Maravall & Ana del Río, 2001. "Time Aggregation and the Hodrick-Prescott Filter," Banco de Espa�a Working Papers 0108, Banco de Espa�a.
  19. World Bank, 2005. "World Development Indicators 2005," World Bank Publications, The World Bank, number 12425, March.
  20. Rankin, Keith, 1992. "New Zealand's Gross National Product: 1859-1939," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(1), pages 49-69, March.
  21. repec:wbk:wbpubs:12426 is not listed on IDEAS
  22. Greasley, David & Oxley, Les, 2000. "Measuring New Zealand's GDP 1865-1933: A Cointegration-Based Approach," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(3), pages 351-68, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:5:y:2007:i:2-3:p:352-360. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Pollock-Nelson)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.