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

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  • Mr. Kenneth Rogoff
  • Ms. Carmen Reinhart

Abstract

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.

Suggested Citation

  • Mr. Kenneth Rogoff & Ms. Carmen Reinhart, 2013. "Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten," IMF Working Papers 2013/266, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2013/266
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    More about this item

    Keywords

    WP; debt; crisis; World War I debt; Reinhart; Financial crises; sovereign debt crises; deleveraging; credit cycles; financial repression; debt restructuring.; overhang episode; foreign currency; inflation crisis; country debt; debt overhang problem; debt picture; debt to the United States; debt payment; central government debt; debt overhang episode; war debt; Domestic debt; Debt burden; Global; Europe;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G1 - Financial Economics - - General Financial Markets
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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