years, GDP and GDP per capita were around 6-10 percent lower in crisis episodes, while investment was 15-22 percent lower. Crises in rapid government debt buildups featured significantly larger output losses than crises in rapid private debt buildups, while outcomes were particularly weak when crises coincided with combined government and private debt accumulation episodes.

Likelihood of financial crises. A rise in debt, either government or private, was associated with a higher probability of crisis in the following year. In addition, a combined accumulation of both government and private debt resulted in a higher likelihood of a currency crisis than solely-government or solely-private debt increases. Financial crises were typically triggered by external shocks such as sudden increases in global interest rates, but domestic vulnerabilities often amplified the adverse impact of these shocks. Crises were more likely, or the economic distress they caused was more severe, in countries with higher external debt—especially short-term—and lower international reserves.

Crises associated with inadequate policy frameworks . Most EMDEs that experienced financial crises during debt accumulation episodes employed various combinations of unsustainable macroeconomic policies, such as poor revenue collection, monetary financing of fiscal deficits, and use of subsidies. They also frequently suffered structural and institutional weaknesses, including inadequate regulatory regimes, and suffered from poor debt management. Several EMDEs that experienced crises also suffered from protracted political uncertainty.

This paper makes several novel contributions to the already extensive literature on the linkages between debt and financial crises. First, it undertakes the first comprehensive empirical study of the many episodes of government and private debt accumulation since 1970 in a large number of EMDEs. It considers not only what happened during the financial crises associated with rapid debt accumulation, but also examines macroeconomic and financial developments during the episodes of debt accumulation. Earlier work has often examined developments in government or private debt markets separately, analyzed these developments over short time intervals around financial crises, or focused on a narrow group of (mostly advanced) economies or regions.<sup>1</sup> Second, the paper expands on earlier empirical studies of the correlates of crises by analyzing the linkages between debt accumulation and the probability of financial crises in a single empirical framework and by extending the horizon of analysis to the period 1970-2018. Earlier studies have examined government debt crises (Manasse, Roubini, and Schimmelpfenning 2003), private debt crises (Borio and Lowe 2002; Demirgüç-Kunt and Detragiache 1998; Kaminsky and Reinhart 1999) or both (Dawood, Horsewood, and Strobel 2017; Frankel and Rose 1996; Rose and Spiegel 2012). However, while some earlier studies examined the roles of different types of debt and a host of potential correlates of crises, they typically examined the linkages between a composite indicator of

> 1 For example, government debt crises have been discussed in Abbas, Pienkowski, and Rogoff (2019); Kindleberger and Aliber (2011); Reinhart, Reinhart, and Rogoff (2012); Reinhart and Rogoff (2011); and World Bank (2019a). Credit booms have been examined in Dell’Arricia et al. (2014, 2016); Elekdag and Wu (2013); Jordà, Schularick, and Taylor (2011); Mendoza and Terrones (2008, 2012); Ohnsorge and Yu (2016); Schularick and Taylor (2012); and Tornell and Westermann (2005).

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