Reinhart and Rogoff Charts

8/19/2019 Reinhart and Rogoff Charts

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Monday, August 27, 12


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Professor Carmen Reinhart is DennisWeatherstone Senior Fellow at the PetersonInstitute for International Economics

Kenneth Rogoff is Thomas D. Cabot Professor ofPublic Policy and Professor of Economics atHarvard University



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668

countries

centuries



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government debt defaults

currency crasheshigh and hyper ination

resulting unemployment



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government debt defaults

currency crasheshigh and hyper ination

resulting unemployment



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A composite index ofnancial instability:external default, domesticdefault, currency crashes, and

ination outbursts.



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8/38Monday, August 27, 12


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“A sovereign default on external debt is agovernment default on its own external debt orprivate sector debts that were publiclyguaranteed.”

“A serial default is repeated sovereign default.”

Reihart and Rogoff 2008: 3, 5



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“...contrary to much contemporary opinion,domestic debt constituted an important part ofgovernment debt in most countries, includingemerging markets, over most of their existence.”

Reinhart and Rogoff 2008: 9



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“...domestic debt averages almost two-thirds of total public debt”



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“long-term debt constitutes a large share of the total debt

stock over a signicant part of the sample”Monday, August 27, 12


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“...overt de jure defaults on domestic public debt, whileless common than external defaults, are hardly rare.Our data set includes 68 cases of overt default(compared to 250 post-1800 external debt defaults).These de jure defaults took place via a poutpourri ofmechanisms, ranging from forcible conversions, to lowercoupon rates, to unilateral reduction of principal(sometimes in conjunction with a currency

conversion), to suspensions of payments.”




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“...both components rise rapidly, at about the

same rates, just before default.

But domestic debt buildups often happen in theaftermath of external default, precisely becausecountries have difculty borrowing abroad.”




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“...median duration of default spells in the post-World War II period is one-half the length ofwhat it was during 1800-1945 (3 years versus 6years, ...).”




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Why borrow money? Or, why go into debt?

To nance spending--public and private sectors

External and domestic sources:Governments can borrow from WB, IMF, bilateral

institutions and commercial banks

Private companies can borrow from commercialsources or from government banks

Individuals can borrow from public and privatebanks or from other individuals (informal)



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end here



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“Periods of high international capital mobilityhave repeatedly produced international bankingcrises, not only famously as they did in the1990s, but historically.”




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“Favorable trends in countries’ terms of trade (meaningtypically, high prices for primary commodities) typicallylead to a ramp-up of borrowing that collapses into

defaults when prices drop.” (page 31)Monday, August 27, 12


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“Since World War II, ination and default havegone hand-in-hand.”




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“...ination crises and exchange rate crises travelhand-in-hand in the overwhelming majority ofepisodes across time and countries (with amarkedly tighter link in chronic ination

countries.”




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Avoiding crisis



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Documents

Reinhart and Rogoff Charts