From Financial Crash to Debt Crisis

By Carmen M. Reinhart, Kenneth S. Rogoff. 2011

1,549 citations recorded by the source corpus.

Newly developed long historical time series on public debt, along with modern data on external debts, allow a deeper analysis of the cycles underlying serial debt and banking crises. The evidence confirms a strong link between banking crises and sovereign default across the economic history of great many countries, advanced and emerging alike. The focus of the analysis is on three related hypotheses tested with both "world" aggregate levels and on an individual country basis. First, private debt surges are a recurring antecedent to banking crises; governments quite contribute to this stage of the borrowing boom. Second, banking crises (both domestic ones and those emanating from international financial centers) often precede or accompany sovereign debt crises. Indeed, we find they help predict them. Third, public borrowing accelerates markedly ahead of a sovereign debt crisis; governments often have "hidden debts" that far exceed the better documented levels of external debt. These hidden debts encompass domestic public debts (which prior to our data were largely undocumented).

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/77993d960b72f69f2cf227b3dc293ff6571975a7

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Citations in the corpus

Credit risk determinants: Evidence from a cross-country study (2015, positive): “Zribi and Boujelbène (2011) also consider both macroeconomic and microeconomic variables that are likely to control for credit risk.”
Bubbles, Financial Crises, and Systemic Risk (2012, neutral): “Banking crises may lead to sovereign debt crises (Reinhart and Rogoff (2011)) and countries may default on their external (and potentially also domestic) debt.”
Cash conversion cycle and corporate performance: Global evidence (2018, neutral): “Smith (1987) argues that the state of the economy influences the level of accounts receivable.”
Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises (2012, positive): “For example, Bolton and Rosenthal (2002) argue that in the event an economy suffers collectively from a debt overhang problem, as was the case in the Great Depression and the Cotton Panic of 1819, legislatures may be relied upon to intervene and pass legislation calling for collective debt relief.”
Labour Reallocation and Productivity Dynamics: Financial Causes, Real Consequences (2016, neutral): “And banking crises preceded by credit booms tend to be followed by larger output losses and shallower recoveries (Jorda et al (2013), Reinhart and Rogoff (2011)).”