Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten

• Authors: Reinhart Carmen M. , Rogoff Kenneth S.
• Languages of publication: EN

Abstracts

EN

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

Keywords

EN

Financial crises; sovereign debt crises; deleveraging; credit cycles; financial repression; debt restructuring; debt forgiveness; capital controls; austerity

• Publisher: Uniwersytet Warszawski. Wydział Nauk Ekonomicznych
• Journal: Journal of Banking and Financial Economics
• Year: 2015
• Issue: 2(4)
• Pages: 5-17

Dates

online

2015-08-11

Contributors

author

Reinhart Carmen M.

• Kennedy School of Government, Harvard University, U.S.A.

author

Rogoff Kenneth S.

• Department of Economics, Harvard University, U.S.A.

References

• Bailey, T.A., 1950. A Diplomatic History of the American People, (New York: Appleton-Century-Crofts, Inc).
• Barro, R., and J. Ursua, 2009. Stock-Market Crashes and Depressions, NBER Working Paper No. 14760 (Cambridge, Massachusetts: National Bureau of Economic Research).
• Brunnermeier, M.K., and Y. Sannikov, 2012. Redistributive Monetary Policy, Paper prepared for the Federal Reserve Bank of Kansas City’s Economic Policy Symposium, Jackson Hole, Wyoming, August 30–September 1.
• Diaz-Alejandro, C., 1985. Good-bye Financial Repression, Hello Financial Crash, Journal of Development Economics, Vol. 19, No. 1-2, pp. 1–24.
• Dornbusch, R. and M. Draghi, 1990. Public Debt Management: Theory and History, (Cambridge: Cambridge University Press)
• Kaminsky, G.L., and C.M. Reinhart, 1999. The Twin Crises: The Causes of Banking and Balance of Payments Problems, American Economic Review 89 (June 1999), pp. 473–500.
• Laeven, L., and F. Valencia, 2010. Resolution of Banking Crises: The Good, the Bad, and the Ugly, IMF Working Paper 10/146 (Washington: International Monetary Fund).
• Lane, P., and G.M. Milesi-Ferretti, 2007. The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004, Journal of International Economics, Vol. 73, pp. 223–50. League of Nations, various years, World Economic Survey: 1926–1944. All issues. (Geneva: League of Nations).
• Lindert, P.H., and P.J. Morton, How Sovereign Debt Has Worked, in: Jeffrey Sachs, ed., Developing Country Debt and Economic Performance, Vol. 1 (University of Chicago Press), pp. 39–106.
• Lloyd Prichard, M., 1970. An economic history of New Zealand to 1939, (Auckland &. London, Collins). New York Times, 1934. All Debtors to US Excepting Finland Default Today, June 15.
• Pick, F., and R. Sédillot, 1971. All the Monies of the World: A Chronicle of Currency Values, (New York: Pick Publishing Corporation).
• Redell, M., 2012. The New Zealand Debt Conversion Act 1933: a case study in coercive domestic public debt restructuring, Reserve Bank of New Zealand Bulletin, 2012, Vol. 75, pp. 38–45.
• Reinhart, C.M., K.S. Rogoff, and M.A. Savastano, 2003. Debt Intolerance, Brookings Papers on Economic Activity 1 (Spring 2003), pp. 1–74.
• Reinhart, C.M., V.R. Reinhart, and K.S. Rogoff, 2012. Public Debt Overhangs: Advanced- Economy Episodes since 1800, Journal of Economic Perspectives, Vol. 26, No. 3, pp. 69–86.
• Reinhart, C.M., and K.S. Rogoff, 2013. Banking Crises: An Equal Opportunity Menace, Journal of Banking and Finance, Vol. 37, pp. 4557–4573.
• Reinhart, C.M., and K.S. Rogoff, 2009, This Time is Different: Eight Centuries of Financial Folly, (Princeton, New Jersey: Princeton University Press).
• Reinhart, C.M., and K.S. Rogoff, 2011. From Financial Crash to Debt Crisis, American Economic Review, Vol. 101, No. 5, pp. 1676–706.
• Reinhart, C.M., and M.B. Sbrancia, 2011. The Liquidation of Government Debt, NBER Working Paper No. 16893 (Cambridge, Massachusetts: National Bureau of Economic Research).
• Reinhart, C.M., and C. Trebesch, 2015. Sovereign Debt Relief and its Aftermath, CESifo Working Paper Series 5422, CESifo Group Munich.
• Schedvin, C.B., 1970, Australia and the great depression, (Sydney: Sydney University Press). Sturzenegger, F., and J. Zettlemeyer, 2006, Debt Defaults and Lessons from a Decade of Crises, (Cambridge, Massachusetts: MIT Press). United Nations, 1948, Department of Economic Affairs, Public Debt, 1914–1946 (New York: United Nations).

Identifiers

ISSN

2353-6845

DOI

10.7172/2353-6845.jbfe.2015.2.1