Trends and Cycles in Sovereign Debt Markets 1800-2013: The Role of Risk and Expectations

Prof. Dr. Christoph Trebesch, Kiel (prev. München); Principal Investigator

Prof. Carmen M. Reinhart, Cambridge (Mass.)

Sebastian Horn M. Sc, Worldbank (ehem. München & Kiel)


A widespread conclusion in the sovereign debt literature is that creditors ignore history. This project reassesses this finding based on a new, comprehensive dataset on trends and cycles in public debt markets from 1800-2013. Our aim is to understand whether historical experiences, in particular past financial crises and creditor losses, shape investor expectations and thereby the level and dynamics of interest rates on sovereign debt.

The project will make two main contributions. In part one, we will generate systematic new knowledge on past investor experiences in sovereign debt markets and extend the work by Reinhart and Rogoff (2009) by constructing an archive of sovereign debt restructuring events and related creditor losses (haircuts). Unlike previous research we will not only focus on the occurrence of past default (any missed payments), but instead document and explain the magnitude of defaults and haircuts in history for the first time. In addition, we will compile the first broad-based historical database on sovereign bailouts and crisis lending by foreign governments and international financial institutions since 1800.

In part two, we will then use these newly constructed datasets to study how past crises and past bailouts shaped the borrowing conditions of governments in international capital markets over the past 200 years. Methodologically, the main advantage of using long-run data is that we can trace the variation in financial institutions and in the type and frequency of crises over time. For example, prior to World War II, there was no international lender of last resort such as the IMF. This allows us to study how investor expectations about sovereign risk changed with and without credible bailout institutions. More generally, a long-run study of sovereign interest rates will provide important policy insights in a time of high debt and an ageing population that saves for retirement.



Horn, Sebastian / Reinhart, Carmen / Trebesch, Christoph (2019): China’s Overseas Lending. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 11 (September), Berlin 

Meyer, Josefin / Reinhart, Carmen / Trebesch, Christoph (2019): Sovereign Bonds since Waterloo. Working Papers of the Priority Programme 1859 “Experience and Expectation. Historical Foundations of Economic Behaviour” No 12 (October), Berlin