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Output costs of sovereign crises: some empirical estimates

  • De Paoli, Bianca

    ()

    (Bank of England)

  • Hoggarth, Glenn

    ()

    (Bank of England)

  • Saporta, Victoria

    ()

    (Bank of England)

Avoiding the broader output losses to their economy is likely to be the key reason why governments avoid debt crises. Despite this, there has been little work that seeks to quantify output losses associated with such crises. This paper seeks to fill this gap. We find that debt crisis episodes last for long - on average by about ten years - and are associated with large output losses (of at least 5% per year). Sovereign crises rarely occur in isolation - more often than not they are associated with currency crises or banking crises or both. It is the occurrence of a potent cocktail of 'twin' or 'triple' crises that is strongly associated with output losses rather than sovereign crisis per se.

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Paper provided by Bank of England in its series Bank of England working papers with number 362.

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Length: 32 pages
Date of creation: 16 Feb 2009
Date of revision:
Handle: RePEc:boe:boeewp:0362
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