Endogenous debt crises

Daniel Cohen and Sébastien Villemot

No 8270, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We distinguish two types of debt crises: those that are the outcome of exogenous shocks (to productivity growth for instance) and those that are endogenously created, either by self-fulfilling panic in financial markets or by the reckless behavior of "Panglossian" borrowers. After Krugman, we characterize as "Panglossian" those borrowers who only focus on their best growth prospects, anticipating to default on their debt if hit by an adverse shock, rationally ignoring the risk of default. We apply these categories empirically to the data. We show that, taken together, endogenous crises are powerful explanations of debt crises, more important for instance than the sheer effect of growth on a country's solvency.

Keywords: Self-fulfilling crises; Sovereign debt (search for similar items in EconPapers)
JEL-codes: F34 (search for similar items in EconPapers)
Date: 2011-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://cepr.org/publications/DP8270 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Endogenous debt crises (2015)
Working Paper: Endogenous debt crises (2015)
Working Paper: Endogenous Debt Crises (2015)
Working Paper: Endogenous debt crises (2015)
Working Paper: Endogenous Debt Crises (2015)
Working Paper: Endogenous debt crises (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8270

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8270

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().