How do worries about a country’s sovereign debt affect its real economy? The question is highly practical, with higher global public debt levels post-COVID and nations from Argentina to Zambia expected to struggle with upcoming bond payments. Many economists have sought to understand the economic effects of a full-blown sovereign debt default. But less attention has been paid to the more common scenario of a country simply considered to be at risk of default. The issue poses an identification challenge: The same economic conditions that push a country to struggle with debt payments and undermine investor confidence can simultaneously affect the real economy of firms and workers […]