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The aftermath of sovereign debt crises: a narrative approach

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  • Esteves, Rui
  • Kenny, Seán
  • Lennard, Jason

Abstract

This paper investigates the causal effects of sovereign debt crises in a sample of 50 defaulting economies between 1870 and 2010. As default is potentially endogenous, we use the narrative approach to identify plausibly exogenous episodes. We find economically and statistically significant costs of up to 3.2 percent of GDP before recovering to the pre-crisis level after five years. The average aftermath, however, conceals a large heterogeneity by default cause. Defaults originating from negative supply shocks, political crises, or adverse terms of trade are associated with higher costs. Demand shocks, in contrast, have a moderate effect that is quickly reversed.

Suggested Citation

  • Esteves, Rui & Kenny, Seán & Lennard, Jason, 2024. "The aftermath of sovereign debt crises: a narrative approach," LSE Research Online Documents on Economics 126096, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126096
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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