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The Costs of Sovereign Default
Author:
Mr. Eduardo Borensztein
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Ugo Panizza null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2008: Issue 238
Language:
English
Publication Date:
01 Oct 2008
DOI:
https://doi.org/10.5089/9781451870961.001
ISBN:
9781451870961
ISSN:
1018-5941
Pages:
50
Keywords:
WP; default episode; default dummy; default history
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper evaluates empirically four types of cost that may result from an international sovereign default: reputational costs, international trade exclusion costs, costs to the domestic economy through the financial system, and 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, by contrast, seem to be particularly dire for incumbent governments and finance ministers, broadly in line with what happens in currency crises.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund