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Systemic and Idiosyncratic Sovereign Debt Crises

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  • Graciela L. Kaminsky
  • Pablo Vega-García

Abstract

The theoretical literature on sovereign defaults has focused on adverse shocks to debtors’ economies, suggesting that defaults are of an idiosyncratic nature. Still, sovereign debt crises are also of a systemic nature, clustered around panics in the financial center such as the European Sovereign Debt Crisis in the aftermath of the U.S. Subprime Crisis in 2008. Crises in the financial centers are rare disasters and thus, their effects on the periphery can only be captured by examining long episodes. This paper examines sovereign defaults from 1820 to the Great Depression, with a focus on Latin America. We find that 63% of the crises are of a systemic nature. These crises are different. Both the international collapse of liquidity and the growth slowdown in the financial centers are at their core. These global shocks trigger longer default spells and larger investors’ losses.

Suggested Citation

  • Graciela L. Kaminsky & Pablo Vega-García, 2014. "Systemic and Idiosyncratic Sovereign Debt Crises," NBER Working Papers 20042, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20042 Note: IFM
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    Cited by:

    1. Aloisio Araujo & Marcia Leon & Rafael Santos, 2017. "Bargained haircuts and debt policy implications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 635-656.
    2. Carmen M. Reinhart & Christoph Trebesch, 2015. "The Pitfalls of External Dependence: Greece, 1829–2015," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 307-328.
    3. repec:eee:macchp:v2-355 is not listed on IDEAS
    4. Kaminsky, Graciela, 2017. "The Center and the Periphery: Two Hundred Years of International Borrowing Cycles," MPRA Paper 82125, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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