How Costly are Debt Crises?

36 Pages Posted: 5 Aug 2010

See all articles by Aleksandra Zdzienicka

Aleksandra Zdzienicka

International Monetary Fund (IMF)

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

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Date Written: August 5, 2010

Abstract

The aim of this paper is to assess the short and medium term impact of debt crises. Using an unbalanced panel of 159 countries from 1970 to 2008, the paper shows that debt crises produce significant and long-lasting output losses.

In particular, we find that debt crises are very costly reducing output by 3-5 percent after one year and by 6-12 percent after 8 years. The results also suggest that debt crises are also more damaging than banking and currency crises, and that the occurrence of a triple crisis (debt, currency and banking crisis) is associated with a contemporaneous output loss of more than 10 percent. The significance of the results is robust to the estimation procedures used (LDSV and two-step GMM-system estimator), different specifications and datasets.

Keywords: Output Losses, Debt Crises, Financial Crises

JEL Classification: G1, E6

Suggested Citation

Zdzienicka, Aleksandra and Furceri, Davide, How Costly are Debt Crises? (August 5, 2010). Available at SSRN: https://ssrn.com/abstract=1653855 or http://dx.doi.org/10.2139/ssrn.1653855

Aleksandra Zdzienicka

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Davide Furceri (Contact Author)

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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