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"Rules of thumb" for sovereign debt crises

  • Manasse, Paolo
  • Roubini, Nouriel

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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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 78 (2009)
Issue (Month): 2 (July)
Pages: 192-205

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Handle: RePEc:eee:inecon:v:78:y:2009:i:2:p:192-205
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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