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The aim of this paper is to assess the short- and medium-term impact of debt crises on GDP. Using an unbalanced panel of 154 countries from 1970 to 2008, the paper shows that debt crises produce significant and long-lasting output losses, reducing output by about 10 percent after eight years. The results also suggest that debt crises tend to be more detrimental than banking and currency crises. The significance of the results is robust to different specifications, identification and endogeneity checks, and datasets.

Debts, Public --- Gross domestic product --- Domestic product, Gross --- GDP --- Gross national product --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Econometric models. --- Exports and Imports --- Financial Risk Management --- Macroeconomics --- Public Finance --- Financial Crises --- International Lending and Debt Problems --- Foreign Exchange --- Macroeconomics: Production --- Debt Management --- Sovereign Debt --- Economic & financial crises & disasters --- International economics --- Public finance & taxation --- Financial crises --- Debt default --- Currency crises --- Production growth --- External debt --- Production --- Debts, External --- Economic theory --- Costa Rica

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The aim of this paper is to assess the consequences of banking crises for public debt. Using an unbalanced panel of 154 countries from 1980 to 2006, the paper shows that banking crises are associated with a significant and long-lasting increase in government debt. The effect is a function of the severity of the crisis. In particular, for severe crises, comparable to the most recent one in terms of output losses, banking crises are followed by a medium-term increase of about 37 percentage points in the government gross debt-to-GDP ratio. Measuring the increase in debt in this manner seems more appropriate than some of the measures used in the literature that have provided off-quoted and very large numbers for the run-up in debt. In addition, the debt ratio increased more in countries with a higher initial gross debt-to-GDP ratio and with a higher initial foreign debt-to-GDP ratio.

Economics

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The aim of this paper is to assess the consequences of banking crises for public debt. Using an unbalanced panel of 154 countries from 1980 to 2006, the paper shows that banking crises are associated with a significant and long-lasting increase in government debt. The effect is a function of the severity of the crisis. In particular, for severe crises, comparable to the most recent one in terms of output losses, banking crises are followed by a medium-term increase of about 37 percentage points in the government gross debt-to-GDP ratio. Measuring the increase in debt in this manner seems more appropriate than some of the measures used in the literature that have provided off-quoted and very large numbers for the run-up in debt. In addition, the debt ratio increased more in countries with a higher initial gross debt-to-GDP ratio and with a higher initial foreign debt-to-GDP ratio.

Economics

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The aim of this paper is to assess the effectiveness of risk sharing mechanisms in the euro area and whether a supranational fiscal risk sharing mechanism could insure countries against very severe downturns. Using an unbalanced panel of 15 euro area countries over the period 1979-2010, the results of the paper show that: (i) the effectiveness of risk sharing mechanisms in the euro area is significantly lower than in existing federations (such as the U.S. and Germany) and (ii) it falls sharply in severe downturns just when it is needed most; (iii) a supranational fiscal stabilization mechanism, financed by a relatively small contribution, would be able to fully insure euro area countries against very severe, persistent and unanticipated downturns.

Eurozone. --- Financial crises --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Euro area --- Euro zone --- Monetary unions --- Financial Risk Management --- Macroeconomics --- Money and Monetary Policy --- Open Economy Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- Financial Aspects of Economic Integration --- Aggregate Factor Income Distribution --- Macroeconomics: Consumption --- Saving --- Wealth --- Fiscal Policy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Crises --- Monetary economics --- Economic & financial crises & disasters --- Income --- Consumption --- Fiscal union --- Credit --- National accounts --- Fiscal policy --- Money --- Economics --- Germany

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Until recently, China has been the leading contributor to global economic growth and—since the recent global financial crisis—a stabilizing driver of its evolution. However, as China recently began to rebalance its economy away from investment and exports and toward consumption, its GDP growth slowed significantly—partly reversing the country’s contribution to global output and trade growth—and is expected to continue to decline gradually over the medium term. There is little consensus regarding the consequences of a China’s growth slowdown for the rest of the world, with some arguing that a significant slowdown in China may have large implications and possibly lead to a worldwide recession if the “rebalancing” process is not well managed, and others suggesting that even a significant slowdown in China is unlikely to have large global effects, as its role in the world economy is still limited This note contributes to the ongoing debate by analyzing how growth shocks in China affect particular regions and country groups and how the impact and key transmission channels of these growth shocks have increased over time. It finds that historically, the average impact of growth shocks in China on global output has been statistically significant but limited, but since the early 2000s, the magnitude of spillovers has significantly increased. Trade linkages remain the main transmission channels, with larger effects for net commodity exporters and countries mostly exporting manufacturing goods. Also, spillover effects tend to be larger during periods of high global uncertainty and have been positively associated with an increase in the share of industry in total value in China, which suggests an important role of the “rebalancing” process.

Commercial products --- Commodities --- Commodity Markets --- Economic theory --- Emerging and frontier financial markets --- Exports and Imports --- Exports --- Externalities --- Finance --- Finance: General --- Financial markets --- Financial sector policy and analysis --- Financial services industry --- General Financial Markets: General (includes Measurement and Data) --- International economics --- International finance --- International trade --- Investment & securities --- Investments: Commodities --- Macroeconomics --- Macroeconomics: Production --- Production growth --- Production --- Spillovers --- Trade: General --- China, People's Republic of