Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten

Carmen M. Reinhart, Kennedy School of Government, Harvard University, U.S.A.Follow
Kenneth S. Rogoff, Department of Economics, Harvard University, U.S.A.Follow

ORCID

Carmen M. Reinhart 0000-0003-4355-1411

Kenneth S. Rogoff 0000-0002-1505-4998

Keywords

Financial crises; sovereign debt crises; deleveraging; credit cycles; financial repression; debt restructuring; debt forgiveness; capital controls; austerity

Abstract

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

Acknowledgments

This paper was initially written as a paper for the conference, “Financial Crises: Causes, Consequences, and Policy Responses,” IMF, Washington, DC, September 14, 2012. The authors were asked to ponder the question of what lessons have been learned since the crisis began. An earlier version of this article appeared as “Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten,” in Financial Crises: Causes, Consequences, and Policy Responses, edited by Stijn Claessens, M. Ayhan Kose, Luc Laeven, and Fabian Valencia. (Washington, DC: International Monetary Fund, 2014).

Recommended Citation

Reinhart, C. M., & Rogoff, K. S. (2024). Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten. Journal of Banking and Financial Economics, 2015(4), 5-17. https://doi.org/10.7172/2353-6845.jbfe.2015.2.1

First Page

Last Page

Page Count

Received Date

University of Warsaw

Revised Date

27 June 2015

Accept Date

29 July 2015

Online Available Date

11 August 2015

DOI

10.7172/2353-6845.jbfe.2015.2.1

JEL Code

E6; E44; F3; F34; G1; H6; N10

Publisher