Working Paper: NBER ID: w10036
Authors: Barry Eichengreen; Ricardo Hausmann; Ugo Panizza
Abstract: Recent years have seen the development of a large literature on balance sheet factors in emerging-market financial crises. In this paper we discuss three concepts widely used in this literature. Two of them original sin' and debt intolerance' seek to explain the same phenomenon, namely, the volatility of emerging-market economies and the difficulty these countries have in servicing and repaying their debts. The debt-intolerance school traces the problem to institutional weaknesses of emerging-market economies that lead to weak and unreliable policies, while the original-sin school traces the problem instead to the structure of global portfolios and international financial markets. The literature on currency mismatches, in contrast, is concerned with the consequences of these problems and with how they are managed by the macroeconomic and financial authorities. Thus, the hypotheses and problems to which these three terms refer are analytically distinct. The tendency to use them synonymously has been an unnecessary source of confusion.
Keywords: currency mismatches; debt intolerance; original sin; emerging markets; financial crises
JEL Codes: F0; F33; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strong institutions (D02) | mitigate effects of original sin (Z12) |
| original sin (Y60) | macroeconomic volatility (E39) |
| original sin (Y60) | GDP growth volatility (O49) |
| original sin (Y60) | credit ratings (G24) |
| debt intolerance (F34) | external debt management (H63) |
| original sin (Y60) | costs of servicing debt (G32) |
| original sin (Y60) | capital flow volatility (F32) |