common in longer episodes (those lasting a decade or more) and shorter ones (lasting less than a decade). The most common form of crisis in debt accumulation episodes was a currency crisis, often combined with other types of crises.<sup>4</sup> More than three quarters of debt accumulation episodes associated with crises (either government or private) had currency crises.

# 2.3 Results

The one-half of debt accumulation episodes that were associated with financial crises had considerably weaker macroeconomic outcomes than those that subsided without crises.

Government debt accumulation episodes . Government debt accumulation episodes that involved crises were typically associated with greater debt buildups, weaker economic outcomes, and higher vulnerabilities than non-crisis episodes (Figure 4, Table 3). In the episodes associated with financial crises, the government debt buildup was, statistically significantly, 14 percentage points of GDP larger after eight years than in non-crisis episodes. After eight years, GDP and GDP per capita in episodes with crises were around 10 percent lower than in episodes without a crisis; investment was 22 percent lower; and consumption was 6 percent lower. International reserves deteriorated more in episodes associated with crises than in non-crisis episodes, as governments drew down reserves in an effort to stem currency depreciation. Nevertheless, currencies depreciated, and shortterm debt could not be rolled over.

Private debt accumulation episodes . Over an eight-year period, private debt accumulation episodes associated with crises featured weaker GDP and GDP per capita (by about 6 percent); consumption (by 8 percent); and investment (by 15 percent; Figure 5; Table 4). Private debt episodes with crises also saw significantly more pronounced deteriorations in external positions, especially international reserves and external debt, than non-crisis episodes. Episodes associated with crises featured broadly stable real exchange rates, in contrast to non-crisis episodes which were accompanied by strong real exchange rate appreciation; this would be consistent with a more productive use of borrowed funds in non-crisis episodes.

Similarities. Regardless of the borrowing sector, rapid debt accumulation episodes with crises featured considerably worse macroeconomic outcomes and vulnerabilities than those not associated with crises. Both types of episodes associated with crises saw sharp rises in inflation than non-crisis episodes, as well as larger falls in international reserves. Fiscal and current account deficits widened in both types of episodes with crises but more in government debt accumulation episodes than in private debt episodes.

Combined government and private debt accumulation episodes with crises were accompanied by significantly weaker investment and consumption growth than solely-

> 4 Some studies have derived estimates of the incidence of crises around private lending booms. Mendoza and Terrones (2012) find that the peaks of 20-25 percent of credit booms were followed by banking crises or currency crises and that 14 percent were followed by sudden stops in capital flows. Schularick and Taylor (2012) identify credit growth as a significant predictor of financial crises. World Bank (2016) estimates that about half of credit booms are followed by at least mild deleveraging. Borio and Lowe (2002); Claessens and Kose (2018); Dell’Ariccia et al. (2016); Enoch and OtkerRobe (2007); and Gourinchas, Valdes, and Landerretche (2001) discuss how lending booms increase vulnerability to financial crisis.

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