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The Aftermath of Sovereign Debt Crises : A Narrative Approach

Kenny, Seán LU ; Lennard, Jason LU and Esteves, Rui (2024) In Journal of Economic History
Abstract
This paper investigates the causal effects of sovereign debt crises in a sample of 50 defaulting economies between 1870 and 2010. As default is potentially endogenous, we use the narrative approach to identify plausibly exogenous episodes. We find economically and statistically significant costs of up to 3.2% of GDP before recovering to the pre-crisis level after five years. The average aftermath, however, conceals a large heterogeneity by default cause. Defaults originating from negative supply shocks, political crises, or adverse terms of trade are associated with higher costs. Demand shocks, in contrast, have a moderate effect that is quickly reversed.

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type
Contribution to journal
publication status
in press
subject
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Journal of Economic History
publisher
Cambridge University Press
ISSN
0022-0507
language
English
LU publication?
yes
id
66c9e69d-9d61-4a78-8172-1d7fa82b0f8e
date added to LUP
2024-11-03 19:01:45
date last changed
2024-11-04 10:59:57
@article{66c9e69d-9d61-4a78-8172-1d7fa82b0f8e,
  abstract     = {{This paper investigates the causal effects of sovereign debt crises in a sample of 50 defaulting economies between 1870 and 2010. As default is potentially endogenous, we use the narrative approach to identify plausibly exogenous episodes. We find economically and statistically significant costs of up to 3.2% of GDP before recovering to the pre-crisis level after five years. The average aftermath, however, conceals a large heterogeneity by default cause. Defaults originating from negative supply shocks, political crises, or adverse terms of trade are associated with higher costs. Demand shocks, in contrast, have a moderate effect that is quickly reversed.<br/><br/>}},
  author       = {{Kenny, Seán and Lennard, Jason and Esteves, Rui}},
  issn         = {{0022-0507}},
  language     = {{eng}},
  month        = {{11}},
  publisher    = {{Cambridge University Press}},
  series       = {{Journal of Economic History}},
  title        = {{The Aftermath of Sovereign Debt Crises : A Narrative Approach}},
  year         = {{2024}},
}