Working Paper: NBER ID: w9908
Authors: Carmen M. Reinhart; Kenneth S. Rogoff; Miguel A. Savastano
Abstract: This paper introduces the concept of debt intolerance,' which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. We argue that safe' external debt-to-GNP thresholds for debt intolerant countries are low, perhaps as low as 15 percent in some cases. These thresholds depend on a country's default and inflation history. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assess the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. Our goal is to make a first pass at quantifying debt intolerance, including delineating debtors' clubs and regions of vulnerability, on the basis on a history of credit events going back to the 1820s for over 100 countries.
Keywords: No keywords provided
JEL Codes: F3; F31; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| historical record of debt management (H63) | current debt tolerance levels (H63) |
| poor historical performance (N13) | increased vulnerability to debt crises (F65) |
| history of serial defaults (Y20) | lower safe external debt thresholds (F34) |
| historical repayment failures (G33) | lower safe external debt thresholds (F34) |
| macroeconomic instability (E60) | lower safe external debt thresholds (F34) |
| debt intolerance (F34) | increased vulnerability to debt crises (F65) |
| weak fiscal structures (H19) | debt intolerance (F34) |
| weak financial systems (P34) | debt intolerance (H74) |
| debt levels (H63) | market perceptions of default risk (G33) |
| high debt intolerant countries (F34) | elevated default risks (G33) |
| past defaults (Y10) | current economic vulnerabilities (F65) |