Tesco
Global Cycles
Report

Global Cycles

Capital Flows, Commodities, and Sovereign Defaults, 1815-2015

Carmen M. Reinhart, Vincent Reinhart and Christoph Trebesch
CESifo Group Munich, 2016
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Editorial Rating

7

Qualities

  • Analytical
  • Innovative
  • Background

Recommendation

History shows jumps in sovereign defaults – especially in emerging markets – following downturns in global capital flows, and fiscal crises are particularly acute after periods of both capital and commodity market declines. But as of the beginning of 2016, fallout from the 2012 cyclical drop in commodity prices and capital flows has been muted. Is the worst in sovereign defaults yet to come? Economists Carmen M. Reinhart, Vincent Reinhart and Christoph Trebesch review the past two centuries’ timelines of capital inflows and outflows to provide some perspective. getAbstract believes that economists, investors and executives will find their analysis a worthwhile recap of economic history for a glimpse into a possible future.

Take-Aways

  • Data from the past two centuries show that global capital flows and changes in commodity prices, along with interest rate volatility, interconnect with economic cycles and sovereign defaults, particularly in emerging markets.
  • This trend is especially significant in today’s environment of declining capital inflows and commodity prices, which expose emerging markets to a potential “double bust.”
  • Research has found that the risk of a country’s defaulting rises by 12 percentage points in the five years following an investment boom, compared with a probability of only 2% in normal times.

About the Authors

Carmen M. Reinhart is a professor at Harvard University. Vincent Reinhart is a visiting scholar at the American Enterprise Institute. Christoph Trebesch is an assistant professor at the University of Munich.

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