Life After Default. Private and Official Deals
68 Pages Posted: 18 Feb 2020
Date Written: February 14, 2020
This paper studies the relationship between sovereign debt default and annual GDP growth distinguishing between private and official deals. Using the Synthetic Control Method to analyze 23 official and private defaulters from 1970 to 2017, we find that private defaults generate output losses both during the crisis and persisting over time. Conversely, official defaulters do not show a permanent drop in GDP per capita, neither during the crisis nor in its aftermath. Using panel data analysis to control for the creditors' loss (haircut), we confirm that official and private defaults may have different effects on GDP growth.
Keywords: Sovereign defaults, Output losses, Synthetic control method
JEL Classification: F34, G15, H63
Suggested Citation: Suggested Citation