Costs of Sovereign Default

Bank of England Quarterly Bulletin, Fall 2006

Bank of England Financial Stability Paper No. 1

23 Pages Posted: 26 Sep 2006

See all articles by Bianca De Paoli

Bianca De Paoli

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Glenn Hoggarth

Bank of England

Date Written: 2006

Abstract

Over the past quarter of a century, emerging market economies (EMEs) have defaulted on their sovereign debts frequently. This article assesses the size and types of costs that have been associated with these defaults. It emphasises that costs, measured by the fall in output, are particularly large when default is combined with banking and/or currency crises. Output losses also seem to increase the longer that countries stay in arrears or take to restructure their debts. The paper concludes with a number of policy suggestions to improve debt crisis prevention and management and the role played by the IMF.

Suggested Citation

De Paoli, Bianca and Hoggarth, Glenn, Costs of Sovereign Default (2006). Bank of England Quarterly Bulletin, Fall 2006. Available at SSRN: https://ssrn.com/abstract=932526

Bianca De Paoli (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Glenn Hoggarth

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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