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Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten

  • Carmen Reinhart
  • Kenneth Rogoff

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial Repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/266.

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Length: 21
Date of creation: 24 Dec 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/266
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  1. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Debt Overhangs: Past and Present," NBER Working Papers 18015, National Bureau of Economic Research, Inc.
  2. Carmen M. & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," Working Paper Series WP11-10, Peterson Institute for International Economics.
  3. Jeffrey Frankel & Jesse Schreger, 2013. "Over-optimistic official forecasts and fiscal rules in the eurozone," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(2), pages 247-272, June.
  4. Smits, J.-P. & Woltjer, P. & Ma, D., 2009. "A Dataset on Comparative Historical National Accounts, ca.1870-1950: A Time-Series Perspective," GGDC Research Memorandum GD-107, Groningen Growth and Development Centre, University of Groningen.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Banking Crises: An Equal Opportunity Menace," NBER Working Papers 14587, National Bureau of Economic Research, Inc.
  6. Michael Reddell, 2012. "The New Zealand Debt Conversion Act 1933: a case study in coercive domestic public debt restructuring," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 75, pages 38-45, March.
  7. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
  8. Robert J. Barro & José F. Ursúa, 2009. "Stock-Market Crashes and Depressions," NBER Working Papers 14760, National Bureau of Economic Research, Inc.
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