IMF Staff Papers, Volume 56, No. 4

IMF Staff Papers, November 4, 2009

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IMF Staff Papers, Volume 56, No. 4

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Bibliographic details

• Published: November 4, 2009
• Series: IMF Staff Papers
• Volume: 56
• DOI: https://doi.org/10.5089/9781589069107.024

Summary of empirical evaluation

• The paper empirically evaluates four types of costs that may result from an international sovereign default:
  • reputational costs,
  • international trade exclusion costs,
  • costs to the domestic economy through the financial system,
  • political costs to the authorities.
• It finds that the economic costs are generally significant but short-lived, and sometimes do not operate through conventional channels.
• The political consequences of a debt crisis seem to be particularly dire for incumbent governments and finance ministers, broadly in line with what happens in currency crises.

Key findings

• Economic costs:
  • Generally significant but short-lived.
  • Sometimes do not operate through conventional channels.
• Political costs:
  • Particularly dire for incumbent governments and finance ministers.
  • Political consequences align broadly with patterns observed in currency crises.

Subjects and keywords

• Subject: Banking, Economic integration, External debt, Financial markets, Foreign exchange, Monetary unions, Production, Real effective exchange rates, Stock markets, Total factor productivity, Trade credits
• Keywords: Africa, Baltics, Caribbean, debt projection, default episode, Global, home terms of trade, Monetary unions, productivity gain, Real effective exchange rates, Southeast Asia, SP, Stock markets, terms-of-trade response, terms-of-trade shock, Total factor productivity, Trade credits