The cost of defaults: the impact of haircuts on economic growth
This paper studies the impact of debt default on economic growth taking into account the depth of a debt restructuring. More specifically, creditors' losses (or haircuts) are used as proxies of the severity of the default episodes. Analyzing 89 defaults in 72 countries over the period 1979-2005, consistently with previous results in this literature, we find that defaults have a negative and significant impact on short-term output growth. Moreover, controlling for the severity of the default through the haircut's size, we find that the severity of the default is indeed correlated with a further contraction in output one year after the default and with a positive increase in output three years after the default. Therefore, the use of a variable which is taken as a proxy of the severity of the default episode allows us to detect a more lasting (and eventually positive) effect of debt default on growth.
|Date of creation:||Dec 2013|
|Date of revision:||Dec 2013|
|Contact details of provider:|| Postal: |
Phone: +39 02 6448 3089
Fax: +39 02 6448 3085
Web page: http://dipeco.economia.unimib.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:att:wimass:8813 is not listed on IDEAS
- Jeremy Bulow & Kenneth Rogoff, 1998.
"Sovereign Debt: Is to Forgive to Forget,"
Levine's Working Paper Archive
209, David K. Levine.
- Barro, Robert J. & Lee, Jong Wha, 2013.
"A new data set of educational attainment in the world, 1950–2010,"
Journal of Development Economics,
Elsevier, vol. 104(C), pages 184-198.
- Robert J. Barro & Jong-Wha Lee, 2010. "A New Data Set of Educational Attainment in the World, 1950-2010," NBER Working Papers 15902, National Bureau of Economic Research, Inc.
- Harold L. Cole & James Dow & William B. English, 1994.
"Default, settlement, and signalling: lending resumption in a reputational model of sovereign debt,"
180, Federal Reserve Bank of Minneapolis.
- Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-85, May.
- Furceri, Davide & Zdzienicka, Aleksandra, 2011.
"How costly are debt crises?,"
30953, University Library of Munich, Germany.
- Michael Tomz & Mark L. J. Wright, 2007.
"Do Countries Default In "Bad Times"?,"
CAMA Working Papers
2007-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Eduardo Borensztein & Ugo Panizza, 2010.
"Do Sovereign Defaults Hurt Exporters?,"
Open Economies Review,
Springer, vol. 21(3), pages 393-412, July.
- Yeyati, Eduardo Levy & Panizza, Ugo, 2011.
"The elusive costs of sovereign defaults,"
Journal of Development Economics,
Elsevier, vol. 94(1), pages 95-105, January.
- Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," IDB Publications (Working Papers) 6713, Inter-American Development Bank.
- Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," Research Department Publications 4485, Inter-American Development Bank, Research Department.
- 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.
- Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," EUI-RSCAS Working Papers 18, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Rose, Andrew K, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," CEPR Discussion Papers 3157, C.E.P.R. Discussion Papers.
- Andrew K. Rose, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," Working Papers 042002, Hong Kong Institute for Monetary Research.
- Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," NBER Working Papers 8853, National Bureau of Economic Research, Inc.
- Andrew K. Rose, 2001. "One reason countries pay their debts: renegotiation and international trade," Staff Reports 142, Federal Reserve Bank of New York.
- Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
- Cruces, Juan J. & Trebesch, Christoph, 2013.
"Sovereign defaults: The price of haircuts,"
Munich Reprints in Economics
20036, University of Munich, Department of Economics.
- Sturzenegger, Federico & Zettelmeyer, Jeromin, 2008.
"Haircuts: Estimating investor losses in sovereign debt restructurings, 1998-2005,"
Journal of International Money and Finance,
Elsevier, vol. 27(5), pages 780-805, September.
- Jeromin Zettelmeyer & Federico Sturzenegger, 2005. "Haircuts; Estimating Investor Losses in Sovereign Debt Restructurings, 1998-2005," IMF Working Papers 05/137, International Monetary Fund.
- Gaston Gelos & Guido Sandleris & Ratna Sahay, 2004.
"Sovereign Borrowing by Developing Countries; What Determines Market Access?,"
IMF Working Papers
04/221, International Monetary Fund.
- Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
- R. Gaston Gelos, Ratna Sahay and Guido Sandleris, 2008. "Sovereign Borrowing by Developing Countries: What Determines Market Access?," Business School Working Papers 2008-02, Universidad Torcuato Di Tella.
- English, William B, 1996. "Understanding the Costs of Sovereign Default: American State Debts in the 1840's," American Economic Review, American Economic Association, vol. 86(1), pages 259-75, March.
- Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
- David Benjamin, 2008. "Recovery Before Redemption," 2008 Meeting Papers 531, Society for Economic Dynamics.
- Ozler, Sule, 1993. "Have Commercial Banks Ignored History?," American Economic Review, American Economic Association, vol. 83(3), pages 608-20, June.
- Eduardo Borensztein & Ugo Panizza, 2009.
"The Costs of Sovereign Default,"
IMF Staff Papers,
Palgrave Macmillan, vol. 56(4), pages 683-741, November.
When requesting a correction, please mention this item's handle: RePEc:mib:wpaper:265. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roberto Reale)
If references are entirely missing, you can add them using this form.