Arbeitspapier
Sovereigns going bust: estimating the cost of default
This paper estimates the cost of sovereign default by using novel econometric methods – dynamic local projections applied to a sample that is re-randomised using inverse propensity score weights. We find that the impact of default on output is negative, significant and persistent – around 2.8% of GDP on impact and 4.8% at peak. The downturn is driven by sharp falls in investment, accompanied by a collapse in gross trade. The cost rises dramatically if the default is followed by a systemic banking crisis, peaking at 9.5% GDP. Our findings suggest that while autarky costs play an important role, sovereign-banking spillovers are central to the cost of default.
- Language
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Englisch
- Bibliographic citation
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Series: Bonn Econ Discussion Papers ; No. 01/2016
- Classification
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Wirtschaft
National Debt; Debt Management; Sovereign Debt
International Lending and Debt Problems
- Subject
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Sovereign default
sovereign debt
banking crises
treatment effects
local projections
inverse propensity score weighting
- Event
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Geistige Schöpfung
- (who)
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Kuvshinov, Dmitry
Zimmermann, Kaspar
- Event
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Veröffentlichung
- (who)
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University of Bonn, Bonn Graduate School of Economics (BGSE)
- (where)
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Bonn
- (when)
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2016
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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Object type
- Arbeitspapier
Associated
- Kuvshinov, Dmitry
- Zimmermann, Kaspar
- University of Bonn, Bonn Graduate School of Economics (BGSE)
Time of origin
- 2016