Debt and Financial Crises

Emerging market and developing economies have experienced recurrent episodes of rapid debt accumulation over the past fifty years. This paper examines the consequences of debt accumulation using a three-pronged approach: an event study of debt accu...

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Main Authors:	Koh, Wee Chian, Kose, M. Ayhan, Nagle, Peter S., Ohnsorge, Franziska L., Sugawara, Naotaka
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	FINANCIAL CRISIS DEBT CRISIS BANKING CRISIS PUBLIC DEBT CURRENCY CRISIS PRIVATE DEBT EXTERNAL DEBT DEBT ACCUMULATION MONETARY POLICY FISCAL POLICY DEBT SUSTAINABILITY FISCAL SUSTAINABILITY
Online Access:	http://documents.worldbank.org/curated/en/560291579701550183/Debt-and-Financial-Crises http://hdl.handle.net/10986/33230

id	okr-10986-33230
recordtype	oai_dc
spelling	okr-10986-332302022-09-20T00:13:29Z Debt and Financial Crises Koh, Wee Chian Kose, M. Ayhan Nagle, Peter S. Ohnsorge, Franziska L. Sugawara, Naotaka FINANCIAL CRISIS DEBT CRISIS BANKING CRISIS PUBLIC DEBT CURRENCY CRISIS PRIVATE DEBT EXTERNAL DEBT DEBT ACCUMULATION MONETARY POLICY FISCAL POLICY DEBT SUSTAINABILITY FISCAL SUSTAINABILITY Emerging market and developing economies have experienced recurrent episodes of rapid debt accumulation over the past fifty years. This paper examines the consequences of debt accumulation using a three-pronged approach: an event study of debt accumulation episodes in 100 emerging market and developing economies since 1970; a series of econometric models examining the linkages between debt and the probability of financial crises; and a set of case studies of rapid debt buildup that ended in crises. The paper reports four main results. First, episodes of debt accumulation are common, with more than 500 episodes occurring since 1970. Second, around half of these episodes were associated with financial crises which typically had worse economic outcomes than those without crises -- after 8 years output per capita was typically 6-10 percent lower and investment 15-22 percent weaker in crisis episodes. Third, a rapid buildup of debt, whether public or private, increased the likelihood of a financial crisis, as did a larger share of short-term external debt, higher debt service cover, and lower reserves cover. Fourth, countries that experienced financial crises frequently employed combinations of unsustainable fiscal, monetary and financial sector policies, and often suffered from structural and institutional weaknesses. 2020-01-23T19:49:23Z 2020-01-23T19:49:23Z 2020-01 Working Paper http://documents.worldbank.org/curated/en/560291579701550183/Debt-and-Financial-Crises http://hdl.handle.net/10986/33230 English Policy Research Working Paper;No. 9116 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	FINANCIAL CRISIS DEBT CRISIS BANKING CRISIS PUBLIC DEBT CURRENCY CRISIS PRIVATE DEBT EXTERNAL DEBT DEBT ACCUMULATION MONETARY POLICY FISCAL POLICY DEBT SUSTAINABILITY FISCAL SUSTAINABILITY
spellingShingle	FINANCIAL CRISIS DEBT CRISIS BANKING CRISIS PUBLIC DEBT CURRENCY CRISIS PRIVATE DEBT EXTERNAL DEBT DEBT ACCUMULATION MONETARY POLICY FISCAL POLICY DEBT SUSTAINABILITY FISCAL SUSTAINABILITY Koh, Wee Chian Kose, M. Ayhan Nagle, Peter S. Ohnsorge, Franziska L. Sugawara, Naotaka Debt and Financial Crises
relation	Policy Research Working Paper;No. 9116
description	Emerging market and developing economies have experienced recurrent episodes of rapid debt accumulation over the past fifty years. This paper examines the consequences of debt accumulation using a three-pronged approach: an event study of debt accumulation episodes in 100 emerging market and developing economies since 1970; a series of econometric models examining the linkages between debt and the probability of financial crises; and a set of case studies of rapid debt buildup that ended in crises. The paper reports four main results. First, episodes of debt accumulation are common, with more than 500 episodes occurring since 1970. Second, around half of these episodes were associated with financial crises which typically had worse economic outcomes than those without crises -- after 8 years output per capita was typically 6-10 percent lower and investment 15-22 percent weaker in crisis episodes. Third, a rapid buildup of debt, whether public or private, increased the likelihood of a financial crisis, as did a larger share of short-term external debt, higher debt service cover, and lower reserves cover. Fourth, countries that experienced financial crises frequently employed combinations of unsustainable fiscal, monetary and financial sector policies, and often suffered from structural and institutional weaknesses.
format	Working Paper
author	Koh, Wee Chian Kose, M. Ayhan Nagle, Peter S. Ohnsorge, Franziska L. Sugawara, Naotaka
author_facet	Koh, Wee Chian Kose, M. Ayhan Nagle, Peter S. Ohnsorge, Franziska L. Sugawara, Naotaka
author_sort	Koh, Wee Chian
title	Debt and Financial Crises
title_short	Debt and Financial Crises
title_full	Debt and Financial Crises
title_fullStr	Debt and Financial Crises
title_full_unstemmed	Debt and Financial Crises
title_sort	debt and financial crises
publisher	World Bank, Washington, DC
publishDate	2020
url	http://documents.worldbank.org/curated/en/560291579701550183/Debt-and-Financial-Crises http://hdl.handle.net/10986/33230
_version_	1764478275814424576

Debt and Financial Crises

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