Output Costs of Sovereign Crises: Some Empirical Estimates

33 Pages Posted: 16 Feb 2009

See all articles by Bianca De Paoli

Bianca De Paoli

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Glenn Hoggarth

Bank of England

Victoria Saporta

Bank of England

Date Written: February 16, 2009

Abstract

Avoiding the broader output losses to their economy is likely to be the key reason why governments avoid debt crises. Despite this, there has been little work that seeks to quantify output losses associated with such crises. This paper seeks to fill this gap. We find that debt crisis episodes last for long - on average by about ten years - and are associated with large output losses (of at least 5% per year). Sovereign crises rarely occur in isolation - more often than not they are associated with currency crises or banking crises or both. It is the occurrence of a potent cocktail of 'twin' or 'triple' crises that is strongly associated with output losses rather than sovereign crisis per se.

Keywords: Sovereign debt, output losses, banking crises, currency crises

JEL Classification: F33, F34

Suggested Citation

De Paoli, Bianca and Hoggarth, Glenn and Saporta, Victoria, Output Costs of Sovereign Crises: Some Empirical Estimates (February 16, 2009). Bank of England Working Paper No. 362, Available at SSRN: https://ssrn.com/abstract=1344294 or http://dx.doi.org/10.2139/ssrn.1344294

Bianca De Paoli (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Glenn Hoggarth

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Victoria Saporta

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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