Monday, August 27, 12

Professor Carmen Reinhart is Dennis

Weatherstone Senior Fellow at the Peterson
Institute for International Economics
Kenneth Rogoff is Thomas D. Cabot Professor of
Public Policy and Professor of Economics at
Harvard University

Monday, August 27, 12

66
8
Monday, August 27, 12

countries
centuries

government debt defaults

currency crashes
high and hyper inflation
resulting unemployment
Monday, August 27, 12

government debt defaults

currency crashes
high and hyper inflation
resulting unemployment
Monday, August 27, 12

A composite index of
financial instability:
external default, domestic
default, currency crashes, and
inflation outbursts.

Monday, August 27, 12

Video on key finding

Monday, August 27, 12

Monday, August 27, 12

A sovereign default on external debt is a

government default on its own external debt or
private sector debts that were publicly
guaranteed.
A serial default is repeated sovereign default.
Reihart and Rogoff 2008: 3, 5

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

...contrary to much contemporary opinion,

domestic debt constituted an important part of
government debt in most countries, including
emerging markets, over most of their existence.
Reinhart and Rogoff 2008: 9

Monday, August 27, 12

...domestic debt averages almost two-thirds of total public debt

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

long-term debt constitutes a large share of the total debt

stock over a significant part of the sample
Monday, August 27, 12

Monday, August 27, 12

...overt de jure defaults on domestic public debt, while

less common than external defaults, are hardly rare.
Our data set includes 68 cases of overt default
(compared to 250 post-1800 external debt defaults).
These de jure defaults took place via a poutpourri of
mechanisms, ranging from forcible conversions, to lower
coupon rates, to unilateral reduction of principal
(sometimes in conjunction with a currency
conversion), to suspensions of payments.
Reinhart and Rogoff 2008: 10

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

...both components rise rapidly, at about the

same rates, just before default.
But domestic debt buildups often happen in the
aftermath of external default, precisely because
countries have difficulty borrowing abroad.
Reinhart and Rogoff 2008: 12

Monday, August 27, 12

...median duration of default spells in the postWorld War II period is one-half the length of
what it was during 1800-1945 (3 years versus 6
years, ...).
Reinhart and Rogoff 2008: 12

Monday, August 27, 12

Monday, August 27, 12

Why borrow money? Or, why go into debt?

To finance spending--public and private sectors
External and domestic sources:
Governments can borrow from WB, IMF, bilateral
institutions and commercial banks
Private companies can borrow from commercial
sources or from government banks
Individuals can borrow from public and private
banks or from other individuals (informal)
Monday, August 27, 12

end here

Monday, August 27, 12

Periods of high international capital mobility

have repeatedly produced international banking
crises, not only famously as they did in the
1990s, but historically.
Reinhart and Rogoff 2008: 7

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

Favorable trends in countries terms of trade (meaning

typically, high prices for primary commodities) typically
lead to a ramp-up of borrowing that collapses into
defaults when prices drop. (page 31)
Monday, August 27, 12

Since World War II, inflation and default have

gone hand-in-hand.
Reinhart and Rogoff 2008: 11

Monday, August 27, 12

Monday, August 27, 12

Monday, August 27, 12

...inflation crises and exchange rate crises travel

hand-in-hand in the overwhelming majority of
episodes across time and countries (with a
markedly tighter link in chronic inflation
countries.
Reinhart and Rogoff 2008: 49

Monday, August 27, 12

Monday, August 27, 12

Avoiding crisis

Monday, August 27, 12

Monday, August 27, 12