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Rules of Thumb for Sovereign Debt Crises

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  • Nouriel Roubini
  • Paolo Manasse

Abstract

This paper contains an empirical investigation of the set of economic and political conditions that are associated with a likely occurrence of a sovereign debt crisis. We use a new statistical approach (Binary Recursive Tree) that allows us to derive a collection of "rules of thumb" that help identify the typical characteristics of defaulters. We find that not all crises are equal: they differ depending on whether the government faces insolvency, illiquidity, or various macroeconomic risks. We also characterize the set of fundamentals that can be associated with a relatively "risk free" zone. This classification is important for discussing appropriate policy options to prevent crises and improve response time and prediction.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/42.

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Length: 32
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/42

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Keywords: Sovereign debt; External debt; Debt restructuring; debt crisis; short-term debt; debt crises; public external debt; debt servicing; sovereign debt crisis; currency crisis; crisis episodes; liquidity crisis; current account; sovereign debt crises; debt service; currency crises; total external debt; crisis probability; sovereign default; recession; public debt; external financing; sovereign defaults; debt burden; debt sustainability; crisis episode; contagion; current account surplus; current account balance; commercial creditors; crises episodes; debt intolerance; current account deficit; stock of debt; crisis lending; external obligation; financial crisis; debt ratios; debt ratio; private external debts; external debt burden; international crisis lending; debt problems; debt servicing needs; crisis resolution; debt outstanding; government debt; reserve bank; balance sheet effects; official creditors; debt obligation; rating agencies; highly indebted countries; external obligations; macroeconomic policies; debt defaults; external debt service; current account deficits; amount of debt; public finances; commercial debt; crisis prevention; external debts; public finance; net external debt; foreign debt; debt stock; debt accumulation; external volatility; indebted countries; international crisis; debt maturity; international lending; financial crises; early warning system;

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References

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  1. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
  2. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
  3. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1.
  4. International Monetary Fund, 1998. "The Relative Importance of Political and Economic Variables in Creditworthiness Ratings," IMF Working Papers 98/46, International Monetary Fund.
  5. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  6. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
  7. Marcos Chamon & Paolo Manasse & Alessandro Prati, 2007. "Can We Predict the Next Capital Account Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 270-305, June.
  8. Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 5.
  9. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," World Bank Economic Review, World Bank Group, vol. 16(2), pages 151-170, August.
  10. Guillermo Larraín & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Publishing.
  11. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
  12. Bennett Sutton & Luis Catão, 2002. "Sovereign Defaults," IMF Working Papers 02/149, International Monetary Fund.
  13. Diego Saravia & Ashoka Mody, 2003. "Catalyzing Capital Flows," IMF Working Papers 03/100, International Monetary Fund.
  14. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity," IMF Working Papers 01/2, International Monetary Fund.
  15. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  16. 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.
  17. Curzio Giannini & Carlo Cottarelli, 2002. "Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending," IMF Working Papers 02/193, International Monetary Fund.
  18. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers.
  19. Swart R. Ghosh & Atish R. Ghosh, 2002. "Structural Vulnerability and Currency Crises," IMF Working Papers 02/9, International Monetary Fund.
  20. repec:rus:hseeco:123922 is not listed on IDEAS
  21. Nigel Andrew Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
  22. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Più Europa (e meno Spagna). O no?
    by Alberto Bagnai in Goofynomics on 2012-05-11 20:28:00
  2. Più Europa (e meno Spagna). O no?
    by redazione in Appello al popolo on 2012-05-12 18:18:08
  3. Frenkel goes to Latvia
    by Alberto Bagnai in Goofynomics on 2013-12-30 16:14:00
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