How Costly are Debt Crises?
36 Pages Posted: 5 Aug 2010
There are 2 versions of this paper
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: Suggested Citation
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