Mark L.J. Wright - Do Countries Default in "Bad Times"?

Journal article

Michael Tomz, Mark L. J. Wright
Journal of the European Economic Association, vol. 5(2-3), 2007 Apr, pp. 352-360

DOI: 10.1162/jeea.2007.5.2-3.352

Cite

APA Click to copy
Tomz, M., & Wright, M. L. J. (2007). Do Countries Default in "Bad Times"? Journal of the European Economic Association, 5(2-3), 352–360. https://doi.org/10.1162/jeea.2007.5.2-3.352

Chicago/Turabian Click to copy
Tomz, Michael, and Mark L. J. Wright. “Do Countries Default in &Quot;Bad Times&Quot;?” Journal of the European Economic Association 5, no. 2-3 (April 2007): 352–360.

MLA Click to copy
Tomz, Michael, and Mark L. J. Wright. “Do Countries Default in &Quot;Bad Times&Quot;?” Journal of the European Economic Association, vol. 5, no. 2-3, Apr. 2007, pp. 352–60, doi:10.1162/jeea.2007.5.2-3.352.

BibTeX Click to copy

@article{tomz2007a,
  title = {Do Countries Default in "Bad Times"?},
  year = {2007},
  month = apr,
  issue = {2-3},
  journal = {Journal of the European Economic Association},
  pages = {352-360},
  volume = {5},
  doi = {10.1162/jeea.2007.5.2-3.352},
  author = {Tomz, Michael and Wright, Mark L. J.},
  month_numeric = {4}
}

Abstract

This paper uses a new dataset to study the relationship between economic output and sovereign default for the period 1820–2004. We find a negative but surprisingly weak relationship between economic output in the borrowing country and default on loans from private foreign creditors. Throughout history, countries have indeed defaulted during bad times (when output was relatively low), but they have also suspended payments when the domestic economy was favorable, and they have maintained debt service in the face of adverse shocks. This constitutes a puzzle for standard theories of international debt, which predict a much tighter negative relationship as default provides partial insurance against declines in output.

JEL Classifications: F21, F34, F41