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'Rules of Thumb' for Sovereign Debt Crises

Author

Listed:
  • Paolo Manasse

    (Universita' di Bologna &IMF)

  • Nouriel Roubini

    (NYU Stern School of Business)

Abstract

This paper investigates the economic and political conditions that are associated to the occurrence of a sovereign debt crisis. We use a new statistical approach (Classification and Regression 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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Suggested Citation

  • Paolo Manasse & Nouriel Roubini, 2005. "'Rules of Thumb' for Sovereign Debt Crises," International Finance 0509003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0509003
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    More about this item

    Keywords

    Sovereign Default; Debt Crises;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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