The Aftermath of Sovereign Debt Crises: A Narrative Approach

Forskningsoutput: Working paper

Standard

The Aftermath of Sovereign Debt Crises: A Narrative Approach. / Esteves, Rui; Kenny, Seán; Lennard, Jason.

2021. (Lund Papers in Economic History; Nr. 2021:221).

Forskningsoutput: Working paper

Harvard

Esteves, R, Kenny, S & Lennard, J 2021 'The Aftermath of Sovereign Debt Crises: A Narrative Approach' Lund Papers in Economic History, nr. 2021:221.

APA

Esteves, R., Kenny, S., & Lennard, J. (2021). The Aftermath of Sovereign Debt Crises: A Narrative Approach. (Lund Papers in Economic History; Nr. 2021:221).

CBE

Esteves R, Kenny S, Lennard J. 2021. The Aftermath of Sovereign Debt Crises: A Narrative Approach. (Lund Papers in Economic History; 2021:221).

MLA

Esteves, Rui, Seán Kenny, och Jason Lennard The Aftermath of Sovereign Debt Crises: A Narrative Approach. Lund Papers in Economic History; 2021:221. 2021., 80 s.

Vancouver

Esteves R, Kenny S, Lennard J. The Aftermath of Sovereign Debt Crises: A Narrative Approach. 2021. (Lund Papers in Economic History; 2021:221).

Author

Esteves, Rui ; Kenny, Seán ; Lennard, Jason. / The Aftermath of Sovereign Debt Crises: A Narrative Approach. 2021. (Lund Papers in Economic History; 2021:221).

RIS

TY - UNPB

T1 - The Aftermath of Sovereign Debt Crises: A Narrative Approach

AU - Esteves, Rui

AU - Kenny, Seán

AU - Lennard, Jason

PY - 2021

Y1 - 2021

N2 - Default is as old as sovereign debt. Since 1820, countries that issued sovereign debt have spent 18% of time in a state of default. Despite the scale of the problem, the causes and consequences of defaults are still imperfectly understood. In this paper we quantify the aggregate cost of defaults, based on a large panel of 50 sovereigns between 1870 and 2010. Since defaults are endogenous to the business cycle, we use the narrative approach to identify plausibly exogenous debt crises. Our estimates yield significant and persistent costs of defaults starting at 1.6% of GDP and peaking at 3.3% before reverting to trend five years after a debt event. Moreover, we identify a large heterogeneity of costs by the cause of default. Higher costs are associated with defaults initiated by negative supply shocks, political crises, or adverse terms of trade. In contrast, domestic demand shocks have a moderate effect, quickly reversed. Despite working with a large sample, we document how average estimates of default costs can be sensitive to different dating and definitions of defaults.

AB - Default is as old as sovereign debt. Since 1820, countries that issued sovereign debt have spent 18% of time in a state of default. Despite the scale of the problem, the causes and consequences of defaults are still imperfectly understood. In this paper we quantify the aggregate cost of defaults, based on a large panel of 50 sovereigns between 1870 and 2010. Since defaults are endogenous to the business cycle, we use the narrative approach to identify plausibly exogenous debt crises. Our estimates yield significant and persistent costs of defaults starting at 1.6% of GDP and peaking at 3.3% before reverting to trend five years after a debt event. Moreover, we identify a large heterogeneity of costs by the cause of default. Higher costs are associated with defaults initiated by negative supply shocks, political crises, or adverse terms of trade. In contrast, domestic demand shocks have a moderate effect, quickly reversed. Despite working with a large sample, we document how average estimates of default costs can be sensitive to different dating and definitions of defaults.

KW - Business cycles

KW - narrative approach

KW - sovereign debt crises

KW - E32

KW - F34

KW - F41

KW - G01

KW - H63

KW - N10

KW - N20

M3 - Working paper

T3 - Lund Papers in Economic History

BT - The Aftermath of Sovereign Debt Crises: A Narrative Approach

ER -