Sovereign-debt relief and its aftermath: The 1930s, the 1990s, the future?

Carmen M Reinhart, Christoph Trebesch 21 October 2014

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Since 2008 Europe has been mired in a combination of economic depression, financial crisis, and public and private debt overhangs. Greece was the first advanced economy to restructure its debt in more than a generation, and the ongoing depression in Europe’s periphery has already surpassed the economic collapse of the 1930s by some markers. In most advanced economies record private debt overhangs are unwinding only slowly, while the steady upward march in public debts continues largely unabated.

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Topics:  Economic history Financial markets International finance

Tags:  sovereign debt, crises, restructuring, sovereign debt crisis

Why DSGEs crash during crises

David F. Hendry, Grayham E. Mizon 18 June 2014

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In most aspects of their lives humans must plan forwards. They take decisions today that affect their future in complex interactions with the decisions of others. When taking such decisions, the available information is only ever a subset of the universe of past and present information, as no individual or group of individuals can be aware of all the relevant information. Hence, views or expectations about the future, relevant for their decisions, use a partial information set, formally expressed as a conditional expectation given the available information.

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Topics:  Macroeconomic policy

Tags:  crises, DSGE, law of iterated expectations

Restructuring sovereign debt, 1950–2010: From process to outcomes

Udaibir S Das, Michael G. Papaioannou, Christoph Trebesch 28 November 2012

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Reinhart and Rogoff (2009) provide an impressive account of the history of sovereign debt crises over the past 200 years. However, they do not discuss the patterns of crisis resolution in detail. How frequent are sovereign debt restructurings? What amounts have been restructured? How long does it take to restructure sovereign bonds or loans? What are the typical pitfalls in the restructuring process (creditor litigation or holdouts)? How do governments communicate with their creditor banks and bondholders? What is the scope of debt relief, or 'haircuts', in past restructurings?

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Topics:  International finance

Tags:  sovereign debt, crises, restructuring

Precautionary savings in the Great Recession

Ashoka Mody, Damiano Sandri, Franziska Ohnsorge 22 February 2012

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A key feature of the Great Recession was a striking increase in uncertainty. The volatility of real GDP increased (left chart in Figure 1) and, at the same time, the higher unemployment rate raised the risks of job losses, longer unemployment durations, and, hence, of severe reductions in income (see Carroll 1992 for a similar interpretation of unemployment rates). These developments stood in marked contrast to the immediately preceding years of apparent tranquility, often characterised as the Great Moderation.

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Topics:  Macroeconomic policy

Tags:  OECD, crises, savings

Political constraints in the aftermath of financial crises

Francesco Trebbi, Atif Mian, Amir Sufi 21 February 2012

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Financial crises of all colours (banking, currency, inflation, or debt crises) leave deep marks on an economy. Deep economic contractions, both in output and employment, are systematic in the interim and in the aftermath of financial crises, as thoroughly documented in research by Reinhart and Rogoff (2009) and Reinhart and Reinhart (2010).

Sustained waves of volatility, often resulting in secondary crises (e.g. debt crises following banking crashes), are almost the norm in the post-crisis period (Reinhart and Rogoff 2011).

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Topics:  Politics and economics

Tags:  reforms, crises, inequalities

Labour markets on the verge of a regulation crisis

Giuseppe Bertola 26 May 2009

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Unemployment is now just about the same in France and the Eurozone as a whole (8.8%) and in the US (8.9%). This is a rather unusual coincidence. The trends in Figure 1 show that in the 1960s unemployment in France (and other European countries) was much lower than in the US. It rose steadily in the 1970s, driven by the interaction of shocks and institutional features (Blanchard, 2006), reached the US level in the early 1980s and remained higher, only starting to descend in the 1990s.

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Topics:  Labour markets

Tags:  unemployment, regulation, crises

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