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Predicting Sovereign Debt Crises

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Author Info
Paolo Manasse
Axel Schimmelpfennig
Nouriel Roubini

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Abstract

We develop an early-warning model of sovereign debt crises. A country is defined to be in a debt crisis if it is classified as being in default by Standard & Poor's, or if it has access to nonconcessional IMF financing in excess of 100 percent of quota. By means of logit and binary recursive tree analysis, we identify macroeconomic variables reflecting solvency and liquidity factors that predict a debt-crisis episode one year in advance. The logit model predicts 74 percent of all crises entries while sending few false alarms, and the recursive tree 89 percent while sending more false alarms.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/221.

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Length: 40 pages
Date of creation: 25 Nov 2003
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Handle: RePEc:imf:imfwpa:03/221

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Keywords: Debt Financial crisis Liquidity

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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.:
  1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier. [Downloadable!] (restricted)
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  2. Nadeem Ul Haque & Donald J. Mathieson & Nelson C. Mark, 1998. "The Relative Importance of Political and Economic Variables in Creditworthiness Ratings," IMF Working Papers 98/46, International Monetary Fund.
  3. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53. [Downloadable!]
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  4. Luis Catão & Bennett Sutton, 2002. "Sovereign Defaults: The Role of Volatility," IMF Working Papers 02/149, International Monetary Fund. [Downloadable!]
  5. Richard Hemming & Michael Kell & Axel Schimmelpfennig, 2003. "Fiscal Vulnerability and Financial Crises in Emerging Market Economies," IMF Occasional Papers 218, International Monetary Fund.
  6. Isabel Schnabel & Giovanni Dell'Ariccia & Jeromin Zettelmeyer, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund. [Downloadable!]
  7. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," World Bank Economic Review, Oxford University Press, vol. 16(2), pages 151-170, August.
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  8. Guillermo Larraín & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Development Centre. [Downloadable!]
  9. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity - Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund. [Downloadable!]
  10. Lee, Suk Hun, 1993. "Are the credit ratings assigned by bankers based on the willingness of LDC borrowers to repay?," Journal of Development Economics, Elsevier, vol. 40(2), pages 349-359, April. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Thomas Stratmann & Bernardin Akitoby, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund. [Downloadable!]
  2. Eduardo Borensztein & Catherine A. Pattillo & Andrew Berg, 2004. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Working Papers 04/52, International Monetary Fund. [Downloadable!]
    Other versions:
  3. Robert Lavigne, 2006. "The Institutional and Political Determinants of Fiscal Adjustment," Working Papers 06-1, Bank of Canada. [Downloadable!]
  4. G. Rossini & P. Zanghieri, 2006. "Current account composition and sustainability of external debt (I)," Working Papers 568, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
  5. Gianluca Femminis & Luigi Ruggerone, 2004. "Bailouts and Bank Runs in a Model of Crony Capitalism," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 4(1), pages 1153-1153. [Downloadable!] (restricted)
  6. Andrew Powell & Juan Francisco Martínez, 2008. "On Emerging Economy Sovereign Spreads and Ratings," RES Working Papers 1080, Inter-American Development Bank, Research Department. [Downloadable!]
  7. Roberto S. Mariano & Delano Villanueva, 2005. "External Debt, Adjustment, and Growth," Working Papers 13-2006, Singapore Management University, School of Economics, revised May 2006. [Downloadable!]
  8. Vivian Z. Yue & Samir Jahjah, 2004. "Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries," IMF Working Papers 04/210, International Monetary Fund. [Downloadable!]
  9. Alessandra dal Colle Stievano, 2004. "Finance-Growth Nexus in open economies with outliers," Money Macro and Finance (MMF) Research Group Conference 2004 4, Money Macro and Finance Research Group. [Downloadable!]
  10. Guillermo Tolosa & Rupa Duttagupta, 2006. "Fiscal Discipline and Exchange Rate Regimes: Evidence from the Caribbean," IMF Working Papers 06/119, International Monetary Fund. [Downloadable!]
  11. Norbert Fiess & Rashmi Shankar, 2005. "Regime-Switching in Exchange Rate Policy and Balance Sheet Effects," Working Papers 2005_16, Department of Economics, University of Glasgow. [Downloadable!]
    Other versions:
  12. Paolo Manasse & Nouriel Roubini, 2005. "'Rules of Thumb' for Sovereign Debt Crises," International Finance 0509003, EconWPA. [Downloadable!]
    Other versions:
  13. Kraay, Aart & Nehru, Vikram, 2004. "When is external debt sustainable?," Policy Research Working Paper Series 3200, The World Bank. [Downloadable!]
    Other versions:
  14. Ahmet Atil Asici, 2007. "Parametric and Non-parametric Approaches to Exits from Fixed Exchange Rate Regimes," HEI Working Papers 14-2007, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  15. Michael Bleaney, . "The Currency Denomination Of Sovereign Debt," Discussion Papers 06/02, University of Nottingham, School of Economics. [Downloadable!]
  16. Moser, Christoph, 2007. "The Impact of Political Risk on Sovereign Bond Spreads - Evidence from Latin America," Proceedings of the German Development Economics Conference, Göttingen 2007 24, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
  17. Serwa, Dobromił, 2007. "Larger crises cost more: impact of banking sector instability on output growth," MPRA Paper 5101, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  18. Mohapatra, Sanket & De, Prabal & Ratha, Dilip, 2007. "Shadow sovereign ratings for unrated developing countries," Policy Research Working Paper Series 4269, The World Bank. [Downloadable!]
  19. Kim Oosterlinck & Loredana Ureche-Rangau, 2008. "Multiple Potential Payers and Sovereign Bond Prices," Working Papers 75, Bank of Greece. [Downloadable!]
    Other versions:
  20. Silvia Ardagna & Francesco Caselli & Timothy Lane, 2007. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," Topics in Macroeconomics, Berkeley Electronic Press, vol. 7(1), pages 1417-1417. [Downloadable!] (restricted)
  21. Selim Elekdag, 2006. "How Does the Global Economic Environment Influence the Demand for IMF Resources," IMF Working Papers 06/239, International Monetary Fund. [Downloadable!]
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