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How Costly are Debt Crises?Aleksandra ZdzienickaUniversity of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) Davide FurceriOrganization for Economic Co-Operation and Development (OECD); University of Palermo - Istituto di Economia Politica August 5, 2010 Abstract: The aim of this paper is to assess the short and medium term impact of debt crises. Using an unbalanced panel of 159 countries from 1970 to 2008, the paper shows that debt crises produce significant and long-lasting output losses. In particular, we find that debt crises are very costly reducing output by 3-5 percent after one year and by 6-12 percent after 8 years. The results also suggest that debt crises are also more damaging than banking and currency crises, and that the occurrence of a triple crisis (debt, currency and banking crisis) is associated with a contemporaneous output loss of more than 10 percent. The significance of the results is robust to the estimation procedures used (LDSV and two-step GMM-system estimator), different specifications and datasets.
Number of Pages in PDF File: 36 Keywords: Output Losses, Debt Crises, Financial Crises JEL Classification: G1, E6 working papers seriesDate posted: August 5, 2010Suggested CitationContact Information
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