Country Default Risk: An Empirical Assessment
We provide benchmarks to evaluate what is an optimal foreign debt and a maximal foreign debt (debt-max), when risk is explicitly considered. When the actual debt exceeds debt-max, then the economy will default when a "bad shock" occurs. This paper is an application of the stochastic optimal controls models of Fleming and Stein (2001), which gives empirical content to the question of how one should measure "vulnerability" to shocks, when there is uncertainty concerning the productivity of capital. We consider two sets of high- risk countries during the period 1978-99: a subset of 21 countries that defaulted on the debt, and another set of 13 countries that did not default. Default is a situation where the firms or government of a country reschedule the interest/principal payments on the external debt. We thereby explain how our analysis can anticipate default risk, and add another dimension to the literature of early warning signals of default/credit risk.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wendell H. Fleming & Jerome L. Stein, 1999.
"A Stochastic Optimal Control Approach to International Finance and Foreign Debt,"
99-23, Brown University, Department of Economics.
- Wendell Fleming & Jerome L. Stein, 1999. "A Stochastic Optimal Control Approach to International Finance and Foreign Debt," CESifo Working Paper Series 204, CESifo Group Munich.
When requesting a correction, please mention this item's handle: RePEc:bro:econwp:2001-08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Brown Economics Webmaster)
If references are entirely missing, you can add them using this form.