Abstract
This paper offers a “panoramic” analysis of the history of financial crises dating
from England’s fourteenth-century default to the current United States sub-prime financial
crisis. Our study is based on a new dataset that spans all regions. It incorporates a number
of important credit episodes seldom covered in the literature, including for example,
defaults and restructurings in India and China. As the first paper employing this data, our
aim is to illustrate some of the broad insights that can be gleaned from such a sweeping
historical database. We find that serial default is a nearly universal phenomenon as
countries struggle to transform themselves from emerging markets to advanced economies.
Major default episodes are typically spaced some years (or decades) apart, creating an
illusion that “this time is different” among policymakers and investors. A recent example
of the “this time is different” syndrome is the false belief that domestic debt is a novel
feature of the modern financial landscape. We also confirm that crises frequently emanate
from the financial centers with transmission through interest rate shocks and commodity
price collapses. Thus, the recent US sub-prime financial crisis is hardly unique. Our data
also documents other crises that often accompany default: including inflation, exchange
rate crashes, banking crises, and currency debasements.
