Working Paper: NBER ID: w13882
Authors: Carmen M. Reinhart; Kenneth S. Rogoff
Abstract: This paper offers a "panoramic" analysis of the history of financial crises dating from England's fourteenth-century default to the current United States sub-prime financial crisis. Our study is based on a new dataset that spans all regions. It incorporates a number of important credit episodes seldom covered in the literature, including for example, defaults and restructurings in India and China. As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database. We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies. Major default episodes are typically spaced some years (or decades) apart, creating an illusion that "this time is different" among policymakers and investors. A recent example of the "this time is different" syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape. We also confirm that crises frequently emanate from the financial centers with transmission through interest rate shocks and commodity price collapses. Thus, the recent US sub-prime financial crisis is hardly unique. Our data also documents other crises that often accompany default: including inflation, exchange rate crashes, banking crises, and currency debasements.
Keywords: financial crises; sovereign default; historical data
JEL Codes: E6; F3; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| country's development stage (O57) | likelihood of sovereign default (F34) |
| financial centers (G29) | sovereign defaults (F34) |
| commodity prices (Q02) | sovereign defaults (F34) |
| interest rates (E43) | sovereign defaults (F34) |
| high inflation (E31) | sovereign defaults (F34) |
| currency crashes (F31) | sovereign defaults (F34) |
| banking crises (G01) | sovereign defaults (F34) |