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Booms and busts in international capital flows and commodity prices, as well as the vagaries of international interest rates, have long been associated with economic crises, especially – but not exclusively – in emerging markets.Sometimes the "sudden stop" in capital inflows sparks a currency crash, sometimes a banking crisis, and quite often a sovereign default.In my recent work with Vincent Reinhart and Christoph Trebesch, I show that over the past two centuries, this "double bust" (in commodities and capital flows) has led to a spike in sovereign defaults, with a lag of one to three years. Yet, since the peak in commodity prices and global capital flows around 2011, the incidence of sovereign defaults worldwide has risen only modestly.China's lending to many emerging markets, most notably commodity producers, rose significantly during the last boom.The largest global surges in sovereign defaults have usually followed a capital-flow reversal that overlaps with a spike in international interest rates.Exceptionally low and stable interest rates have acted to dampen debt-servicing difficulties among the debtor countries and may also help explain the missing defaults.
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