No pay, no debt: domestic costs of sovereign defaults
Date
2024-09
Authors
Manzano Quiroga, Jeremías Ángel
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García-Cicco, Javier
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
This thesis investigates the domestic economic consequences of sovereign defaults by analyzing their impact on key macroeconomic variables, including GDP per capita, consumption, government expenditure, investment, exports, imports, unemployment, and inflation. Using the Synthetic Control Method (SCM), the study constructs counterfactual scenarios for defaulting countries to estimate the effect of defaults on economic outcomes. The results indicate that sovereign defaults generally have persistent negative effects, especially on GDP per capita, investment, and trade, with the adverse impacts often starting before the default due to anticipation effects. This is also consistent with the literature that suggests that defaults result from a series of negative shocks. However, some countries experienced effects that challenge the standard economic intuition. The study also found mixed results regarding unemployment and inconclusive effects on inflation. These findings highlight the complex and varied economic dynamics of sovereign defaults. While SCM proves to be a valuable tool, the presence of anticipation effects and data limitations suggest the need for further methodological refinements and deeper exploration of country-specific factors. This thesis contributes to the growing body of literature on the costs of sovereign defaults using the SCM and suggests directions for future research.
Description
Fil: Manzano Quiroga, Jeremías Ángel. Universidad de San Andrés. Departamento de Economía; Argentina.