From financial crash to debt crisis

NBER WORKING PAPER SERIES

FROM FINANCIAL CRASH TO DEBT CRISIS
Carmen M. Reinhart
Kenneth S. Rogoff
Working Paper 15795 http://www.nber.org/papers/w15795 NATIONAL BUREAU OF ECONOMIC RESEARCH
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March 2010

The authors are grateful to Enrique Mendoza, Maurice Obstfeld, Vincent Reinhart, two anonymous referees and the editor for useful suggestions and the National Science Foundation Grant No. 0849224 for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official
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© 2010 by Carmen M. Reinhart and Kenneth S. Rogoff. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

From Financial Crash to Debt Crisis
Carmen M. Reinhart and Kenneth S. Rogoff
NBER Working Paper No. 15795
March 2010
JEL No. F3,H6,N10
ABSTRACT
Newly developed long historical time series on public debt, along with modern data on external debts, allow a deeper analysis of the cycles underlying serial debt and banking crises. The evidence confirms a strong link between banking crises and sovereign default across the economic history of great many countries, advanced and emerging alike. The focus of the analysis is on three related hypotheses tested with both “world” aggregate levels and on an individual country basis. First, private debt surges are a recurring antecedent to banking crises; governments quite contribute to this stage of the borrowing boom. Second, banking crises (both domestic ones and those emanating from international financial centers) often precede or accompany sovereign

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