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The Politics Of Debt Crises

  • Van Rijckeghem, Caroline
  • Weder di Mauro, Beatrice

This paper shows that politics matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a nonparametric technique to predict safety from default. The advantage of this technique is that it is able to identify complementarities that are not captured in standard probit analysis. We find that political factors matter, and do so in different ways for democratic and non-democratic regimes, and for domestic and external debt. Moreover we find that there is an important complementarity between political and economic conditions, which is essential in explaining the incidence of default.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4683.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4683
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  1. Cole, Harold L. & Kehoe, Timothy J., 1996. "A self-fulfilling model of Mexico's 1994-1995 debt crisis," Journal of International Economics, Elsevier, vol. 41(3-4), pages 309-330, November.
  2. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market; In Search of a Theory," IMF Working Papers 96/38, International Monetary Fund.
  3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
  4. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  5. Amadou N Sy & Andrea Pescatori, 2004. "Debt Crises and the Development of International Capital Markets," IMF Working Papers 04/44, International Monetary Fund.
  6. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  7. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  8. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sérgio, 1998. "Prospective Deficits and the Asian Currency Crises," CEPR Discussion Papers 2015, C.E.P.R. Discussion Papers.
  9. Christian B. Mulder & Matthieu Bussière, 1999. "Political Instability and Economic Vulnerability," IMF Working Papers 99/46, International Monetary Fund.
  10. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  11. Chang, Roberto, 2007. "Financial crises and political crises," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2409-2420, November.
  12. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, vol. 77(1), pages 189-206, June.
  13. Nils Petter Gleditsch & Peter Wallensteen & Mikael Eriksson & Margareta Sollenberg & Hã…Vard Strand, 2002. "Armed Conflict 1946-2001: A New Dataset," Journal of Peace Research, Peace Research Institute Oslo, vol. 39(5), pages 615-637, September.
  14. Roberto Chang, 2006. "Electoral Uncertainty and the Volatility of International Capital Flows," NBER Working Papers 12448, National Bureau of Economic Research, Inc.
  15. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
  16. Kent Osband & Caroline Van Rijckeghem, 2000. "Safety from Currency Crashes," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 4.
  17. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity; Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund.
  18. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  19. Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
  20. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
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