Advanced Search
MyIDEAS: Login to save this paper or follow this series

Sovereign default and macroeconomic tipping points

Contents:

Author Info

  • Joy, Mark

    (Central Bank of Ireland)

Registered author(s):

Abstract

This paper examines the impact of macroeconomic fundamentals on the probability of sovereign default and the probability of exit from default while allowing explicitly for model uncertainty. Model uncertainty is addressed by employing Bayesian model-averaging techniques, averaging over a very large number of different empirical models that each endeavour to explain entry to and exit from periods of sovereign default for defaulting countries over the period 1975 to 2010. Default probabilities are estimated and then used to price sovereign bond spreads. Key findings are: (i) large budget deficits and high interest payments on external debt represent key macroeconomic tipping points for sovereign default; (ii) for exiting periods of default, reducing public debt matters most. These results are robust to both narrow and wide definitions of sovereign default and, due to use of model-averaging techniques, robust to model uncertainty.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.centralbank.ie/publications/Documents/10RT12.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 10/RT/12.

as in new window
Length:
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cbi:wpaper:10/rt/12

Contact details of provider:
Postal: P.O. Box No. 559, Dame Street, Dublin 2
Phone: (01) 671 6666
Fax: (01) 671 6561
Email:
Web page: http://www.centralbank.ie
More information through EDIRC

Related research

Keywords: Sovereign default; risk; model uncertainty;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Paolo Manasse & Nouriel Roubini, 2005. "'Rules of Thumb' for Sovereign Debt Crises," International Finance, EconWPA 0509003, EconWPA.
  2. Nathan Foley-Fisher, 2012. "The timing of sovereign defaults over electoral terms," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1047, Board of Governors of the Federal Reserve System (U.S.).
  3. Bernardo Guimaraes, 2007. "Optimal external debt and default," 2007 Meeting Papers, Society for Economic Dynamics 104, Society for Economic Dynamics.
  4. Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
  5. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity," IMF Working Papers 01/2, International Monetary Fund.
  6. Juan J. Cruces & Christoph Trebesch, 2011. "Sovereign Defaults: The Price of Haircuts," CESifo Working Paper Series 3604, CESifo Group Munich.
  7. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market," IMF Working Papers 96/38, International Monetary Fund.
  8. Carmen Fernandez & Eduardo Ley & Mark Steel, 2001. "Model uncertainty in cross-country growth regressions," Econometrics, EconWPA 0110002, EconWPA.
  9. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 47(3), pages 651-98, September.
  10. Jeromin Zettelmeyer & Federico Sturzenegger, 2005. "Haircuts," 2005 Meeting Papers, Society for Economic Dynamics 18, Society for Economic Dynamics.
  11. Michael Tomz & Mark L. J. Wright, 2007. "Do Countries Default In "Bad Times"?," CAMA Working Papers 2007-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  12. Juan Carlos Hatchondo & Francisco Roch & Leonardo Martinez, 2012. "Fiscal Rules and the Sovereign Default Premium," IMF Working Papers 12/30, International Monetary Fund.
  13. Reinhart, Carmen & Rogoff, Kenneth, 2004. "Serial default and the “paradox” of rich to poor capital flows," MPRA Paper 13997, University Library of Munich, Germany.
  14. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  15. Cuadra, Gabriel & Sapriza, Horacio, 2008. "Sovereign default, interest rates and political uncertainty in emerging markets," Journal of International Economics, Elsevier, Elsevier, vol. 76(1), pages 78-88, September.
  16. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1088-97, December.
  17. Natalia Kovrijnykh & Balázs Szentes, 2007. "Equilibrium Default Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 403-446.
  18. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 74(1), pages 101-24, January.
  19. Bennett Sutton & Luis Catão, 2002. "Sovereign Defaults," IMF Working Papers 02/149, International Monetary Fund.
  20. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, European Finance Association, vol. 14(2), pages 235-262.
  21. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
  22. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950-2010," IMF Working Papers 12/203, International Monetary Fund.
  23. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 545-570, September.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cbi:wpaper:10/rt/12. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Smith).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.