American Economic Review: Vol. 104 No. 5 (May 2014)

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Forty Years of Leverage: What Have We Learned about Sovereign Debt?

Article Citation

Boone, Peter, and Simon Johnson. 2014. "Forty Years of Leverage: What Have We Learned about Sovereign Debt?" American Economic Review, 104(5): 266-71.

DOI: 10.1257/aer.104.5.266

Abstract

Financial crises frequently increase public sector borrowing and threaten some form of sovereign debt crisis. Until recently, high income countries were thought to have become less vulnerable to severe banking crises that have lasting negative effects on growth. Since 2007, crises and attempted reforms in the United States and Europe indicate that advanced countries remain acutely vulnerable. Best practice from developing country experience suggests that regulatory constraints on the financial sector should be strengthened, but this is hard to do in countries where finance has a great deal of political power and cultural prestige, and where leverage is already high.

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Authors

Boone, Peter (CEP, London School of Economics and Political Science)
Johnson, Simon (MIT)

JEL Classifications

E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
F44: International Business Cycles
G01: Financial Crises
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation
H63: National Debt; Debt Management; Sovereign Debt


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