vulnerabilities and crises. In contrast, the empirical approach here zooms in on the linkages between debt and financial crises.

Third, the paper presents a comprehensive review of country case studies of rapid debt accumulation episodes associated with financial crises. Based on a literature review that extracts common themes from a large set of country case studies, this complementary qualitative approach helps identify the major structural and institutional weaknesses associated with financial crises.

The rest of the paper is organized as follows. First, it examines the features of episodes of rapid private and government debt accumulation in an event study framework. Next, it outlines an empirical methodology to analyze how debt accumulation affects the likelihood of financial crises, controlling for other factors. This is followed by a review of selected country case studies to identify the major macroeconomic, structural and institutional weaknesses in national debt accumulation episodes that were associated with financial crises. The paper concludes with a summary of findings.

# 2. National debt accumulation episodes

This section reviews the main features of rapid debt accumulation episodes—periods where the increase in public or private debt has been particularly rapid—and their linkages with financial crises in an event study.

# 2.1 Methodology

Identification of episodes. The identification of episodes of rapid accumulation of government and private debt proceeds in two steps. First, a statistical algorithm (following Harding and Pagan (2002)) is used to identify the cyclical turning points in the debt-to-GDP ratios. In particular, a debt cycle (from one peak debt-to-GDP ratio to the next peak debt-to-GDP ratio) is assumed to last at least five years with a minimum twoyear duration of the contraction phase (from peak to trough) and the expansion (or accumulation) phase (from trough to peak). Second, an expansion phase is labeled as a rapid accumulation episode if an increase in the debt-to-GDP ratio (from trough to peak) exceeds the maximum of ten-year moving standard deviations (over the period t-9 to t) of the debt-to-GDP ratio during the phase (Figure 1). Episodes at the beginning and end of the data series are similarly classified, but the beginning and end of episodes are set at the points where the availability for government and private debt data begins and ends.

Application of this algorithm results in 256 episodes of rapid government debt accumulation and 263 episodes of rapid private debt accumulation in a sample of 100 EMDEs with available data for 1970-2018.<sup>2</sup> This identification algorithm for rapid debt accumulation episodes closely follows methods used to date the turning points of business cycles (Claessens, Kose, and Terrones (2012); Harding and Pagan (2002); and Mendoza and Terrones (2012)). The headline results are robust to using a definition more closely aligned with the literature on credit booms.

> 2 Small states, as defined by the World Bank, are excluded.

> 45 government debt and 38 private debt accumulation episodes are still ongoing. Appendixes 1 and 2 list government and private debt accumulation episodes.

3