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Global Cycles

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Global Cycles

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

CESifo Group Munich,

5 min read
5 take-aways
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In regard to capital flows and sovereign defaults, history may not repeat itself, but it does rhyme.

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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.


Data from the past two centuries show that global capital flows and fluctuating commodity prices, along with interest rate volatility, interconnect with economic cycles and sovereign defaults, particularly in emerging markets. This association is especially significant in today’s environment of declining capital inflows and commodity prices, which expose emerging markets to a potential “double bust.” The current cycle emerged after a low point in both commodities and capital flow cycles in 1999, and it crested in 2011, followed by a serious downturn. That has recently prompted...

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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