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Predicting Sovereign Debt Crises

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Author Info

  • Axel Schimmelpfennig
  • Nouriel Roubini
  • Paolo Manasse

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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Bibliographic Info

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

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Length: 41
Date of creation: 01 Nov 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/221

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Related research

Keywords: Liquidity; debt crisis; external debt; debt crises; short-term debt; currency crisis; sovereign debt; currency crises; crisis episodes; debt-crisis; public debt; total external debt; public external debt; debt service; current account; sovereign default; sovereign debt crises; sovereign debt crisis; crisis probability; debt sustainability; current account balance; banking crises; crisis episode; debt restructuring; current account deficit; external financing; external debt service; government debt; sovereign defaults; contagion; debt servicing; debt situation; crisis countries; balance of payments; official creditors; commercial creditors; crisis lending; international crisis lending; market debt; asian crisis; debt burdens; low debt; national debt; debt outstanding; excessive debt; external obligation; debt data; financial crisis; private banks; private creditors; debt ratios; short-term debts; crisis resolution; crises episodes; external obligations; debt obligation; reserve bank; rating agencies; sovereign debt restructuring; early warning systems; international crisis; banking crisis; debt ratio; commercial debt; domestic debt; debt service to exports; debt obligations; balance sheet effects; budget balance; debt accumulation; external volatility; debt management; models of currency crisis; external resource; stock of debt; debt stock; foreign debt; debt thresholds; international lending; macro factors; early warning system; external debts; public finance;

References

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  1. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen, 2002. "Default, currency crises, and sovereign credit ratings," MPRA Paper 13917, University Library of Munich, Germany.
  3. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
  4. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity," IMF Working Papers 01/2, International Monetary Fund.
  5. 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.
  6. Bennett Sutton & Luis Catão, 2002. "Sovereign Defaults," IMF Working Papers 02/149, International Monetary Fund.
  7. International Monetary Fund, 1998. "The Relative Importance of Political and Economic Variables in Creditworthiness Ratings," IMF Working Papers 98/46, International Monetary Fund.
  8. Guillermo Larraín & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Publishing.
  9. 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.
  10. Richard Hemming & Axel Schimmelpfennig & Michael Kell, 2003. "Fiscal Vulnerability and Financial Crises in Emerging Market Economies," IMF Occasional Papers 218, International Monetary Fund.
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