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Understanding and predicting sovereign debt rescheduling: a comparison of the areas under receiver operating characteristic curves

Listed author(s):
  • Pedro N. Rodriguez

    (Departamento de Estadística e Investigación Operativa II, Universidad Complutense de Madrid, Madrid, Spain)

  • Arnulfo Rodriguez

    (Banco de México, Mexico City, Mexico)

This paper extends the existing literature on empirical research in the field of sovereign debt. To the authors' knowledge, only one study in the area of sovereign debt has used a variety of statistical methodologies to test the reliability of their predictions and to compare their performance against one another. However, those comparisons across models have been made in terms of different probability cut-off points and mean squared errors. Moreover, the issue of interpretability has not been addressed in terms of interactions among explanatory variables with their correspondent debt rescheduling threshold level. The areas under the Receiver Operating Characteristic (ROC) curves are used to compare the discrimination power of statistical models. This paper tests logit, MARS, tree-based and neural network models. Analyses of the relative importance of variables and deviance were done. All of the models rank the previous payment history as the most important explanatory variable. Copyright © 2006 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 25 (2006)
Issue (Month): 7 ()
Pages: 459-479

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Handle: RePEc:jof:jforec:v:25:y:2006:i:7:p:459-479
DOI: 10.1002/for.998
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  1. Barney, Douglas K & Alse, Janardhanan A, 2001. "Predicting LDC Debt Rescheduling: Performance Evaluation of OLS, Logit, and Neural Network Models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(8), pages 603-615, December.
  2. Galindo, J & Tamayo, P, 2000. "Credit Risk Assessment Using Statistical and Machine Learning: Basic Methodology and Risk Modeling Applications," Computational Economics, Springer;Society for Computational Economics, vol. 15(1-2), pages 107-143, April.
  3. Peter Sephton, 2001. "Forecasting recessions: can we do better on MARS?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 39-49.
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