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Predicting Sovereign Debt Crises Using Artificial Neural Networks: A Comparative Approach

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Listed:
  • Marco Fioramanti

    (ISAE - Institute for Studies and Economic Analyses
    University of Pescara, Faculty of Economics)

Abstract

Recent episodes of financial crises have revived the interest in developing models that are able to timely signal their occurrence. The literature has developed both parametric and non parametric models to predict these crises, the so called Early Warning Systems. Using data related to sovereign debt crises occurred in developing countries from 1980 to 2004, this paper shows that a further progress can be done applying a less developed non-parametric method, i.e. Artificial Neural Networks (ANN). Thanks to the high flexibility of neural networks and to the Universal Approximation Theorem an ANN based early warning system can, under certain conditions, outperform more consolidated methods.

Suggested Citation

  • Marco Fioramanti, 2006. "Predicting Sovereign Debt Crises Using Artificial Neural Networks: A Comparative Approach," ISAE Working Papers 72, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    • Handle: RePEc:isa:wpaper:72
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    References listed on IDEAS

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    1. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Early Warning System; Financial Crisis; Sovereign Debt Crises; Artificial Neural Network.;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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