Throughout history, rich and poor
countries alike have been lending, borrowing, crashing--and recovering--their way through
an extraordinary range of financial crises.
Each time, the experts have chimed, "this time
is different"--claiming that the old rules of valuation no longer apply and that the
new situation bears little similarity to past disasters. With this breakthrough study,
leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong.
Covering sixty-six countries across five continents, This Time Is Different presents a
comprehensive look at the varieties of financial crises, and guides us through eight
astonishing centuries of government defaults, banking panics, and inflationary
spikes--from medieval currency debasements to today's subprime catastrophe. Carmen
Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the
policy debate concerning the current financial crisis, provocatively argue that financial
combustions are universal rites of passage for emerging and established market nations.
The authors draw important lessons from history to show us how much--or how little--we
have learned.
Using clear, sharp analysis and
comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters
and strike with surprisingly consistent frequency, duration, and ferocity. They examine
the patterns of currency crashes, high and hyperinflation, and government defaults on
international and domestic debts--as well as the cycles in housing and equity prices,
capital flows, unemployment, and government revenues around these crises. While countries
do weather their financial storms, Reinhart and Rogoff prove that short memories make it
all too easy for crises to recur.
An important book that will affect policy
discussions for a long time to come, This Time Is Different exposes centuries of financial
missteps.
Carmen M. Reinhart is the Dennis Weatherstone Senior Fellow at the
Peterson Institute for International Economics. She was previously professor of economics
at the University of Maryland.
Kenneth S. Rogoff is the Thomas D. Cabot Professor of Public Policy
and professor of economics at Harvard University. He is a frequent commentator for
"NPR", the "Wall Street Journal", and the "Financial Times".
Table of Contents
LIST OF TABLES xiii LIST OF FIGURES xvii LIST OF
BOXES xxiii PREFACE xxv ACKNOWLEDGMENTS xxxvii PREAMBLE: SOME INITIAL INTUITIONS ON
FINANCIAL FRAGILITY AND THE FICKLE NATURE OF CONFIDENCE xxxix
PART I: Financial Crises: An Operational
Primer 1
Chapter 1: Varieties of Crises and Their Dates 3
Crises Defined by Quantitative Thresholds: Inflation, Currency Crashes, and Debasement 4
Crises Defined by Events: Banking Crises and External and Domestic Default 8
Other Key Concepts 14
Chapter 2: Debt Intolerance: The Genesis of Serial Default 21
Debt Thresholds 21
Measuring Vulnerability 25
Clubs and Regions 27
Reflections on Debt Intolerance 29
Chapter 3: A Global Database on Financial Crises with a Long-Term View 34
Prices, Exchange Rates, Currency Debasement, and Real GDP 35
Government Finances and National Accounts 39
Public Debt and Its Composition 40
Global Variables 43
Country Coverage 43
PART II: Sovereign External Debt Crises 49
Chapter 4: A Digression on the Theoretical Underpinnings of Debt Crises 51
Sovereign Lending 54
Illiquidity versus Insolvency 59
Partial Default and Rescheduling 61
Odious Debt 63
Domestic Public Debt 64
Conclusions 67
Chapter 5: Cycles of Sovereign Default on External Debt 68
Recurring Patterns 68
Default and Banking Crises 73
Default and Inflation 75
Global Factors and Cycles of Global External Default 77
The Duration of Default Episodes 81
Chapter 6: External Default through History 86
The Early History of Serial Default: Emerging Europe, 1300-1799 86
Capital Inflows and Default: An "Old World" Story 89
External Sovereign Default after 1800: A Global Picture 89
PART III: The Forgotten History of Domestic
Debt and Default 101
Chapter 7: The Stylized Facts of Domestic Debt and Default 103
Domestic and External Debt 103
Maturity, Rates of Return, and Currency Composition 105
Episodes of Domestic Default 110
Some Caveats Regarding Domestic Debt 111
Chapter 8: Domestic Debt: The Missing Link Explaining External Default and High Inflation
119
Understanding the Debt Intolerance Puzzle 119
Domestic Debt on the Eve and in the Aftermath of External Default 123
The Literature on Inflation and the "Inflation Tax" 124
Defining the Tax Base: Domestic Debt or the Monetary Base? 125
The "Temptation to Inflate" Revisited 127
Chapter 9: Domestic and External Default: Which Is Worse? Who Is Senior? 128
Real GDP in the Run-up to and the Aftermath of Debt Defaults 129
Inflation in the Run-up to and the Aftermath of Debt Defaults 129
The Incidence of Default on Debts Owed to External and Domestic Creditors 133
Summary and Discussion of Selected Issues 136
PART IV: Banking Crises, Inflation, and
Currency Crashes 139
Chapter 10: Banking Crises 141
A Preamble on the Theory of Banking Crises 143
Banking Crises: An Equal-Opportunity Menace 147
Banking Crises, Capital Mobility, and Financial Liberalization 155
Capital Flow Bonanzas, Credit Cycles, and Asset Prices 157
Overcapacity Bubbles in the Financial Industry? 162
The Fiscal Legacy of Financial Crises Revisited 162
Living with the Wreckage: Some Observations 171
Chapter 11: Default through Debasement: An "Old World Favorite" 174
Chapter 12: Inflation and Modern Currency Crashes 180
An Early History of Inflation Crises 181
Modern Inflation Crises: Regional Comparisons 182
Currency Crashes 189
The Aftermath of High Inflation and Currency Collapses 191
Undoing Domestic Dollarization 193
PART V: The U.S. Subprime Meltdown and the
Second Great Contraction 199
Chapter 13: The U.S. Subprime Crisis: An International and Historical Comparison 203
A Global Historical View of the Subprime Crisis and Its Aftermath 204
The This-Time-Is-Different Syndrome and the Run-up to the Subprime Crisis 208
Risks Posed by Sustained U.S. Borrowing from the Rest of the World: The Debate before the
Crisis 208
The Episodes of Postwar Bank-Centered Financial Crisis 215
A Comparison of the Subprime Crisis with Past Crises in Advanced Economies 216
Summary 221
Chapter 14: The Aftermath of Financial Crises 223
Historical Episodes Revisited 225
The Downturn after a Crisis: Depth and Duration 226
The Fiscal Legacy of Crises 231
Sovereign Risk 232
Comparisons with Experiences from the First Great Contraction in the 1930s 233
Concluding Remarks 238
Chapter 15: The International Dimensions of the Subprime Crisis:
The Results of Contagion or Common Fundamentals? 240
Concepts of Contagion 241
Selected Earlier Episodes 241
Common Fundamentals and the Second Great Contraction 242
Are More Spillovers Under Way? 246
Chapter 16: Composite Measures of Financial Turmoil 248
Developing a Composite Index of Crises: The BCDI Index 249
Defining a Global Financial Crisis 260
The Sequencing of Crises: A Prototype 270
Summary 273
PART VI: What Have We Learned? 275
Chapter 17: Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles
of Human Nature 277
On Early Warnings of Crises 278
The Role of International Institutions 281
Graduation 283
Some Observations on Policy Responses 287
The Latest Version of the This-Time-Is-Different Syndrome 290
DATA APPENDIXES 293
A.1. Macroeconomic Time Series 295
A.2. Public Debt 327
A.3. Dates of Banking Crises 344
A.4. Historical Summaries of Banking Crises 348
NOTES 393
REFERENCES 409
NAME INDEX 435
SUBJECT INDEX 443
512 pages, Paperback
