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Sovereign Debt Defaults and Financing Needs

  • Miguel Messmacher
  • Mark Kruger
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    We construct a financial vulnerability indicator that is consistent with the theoretical literature on determinants of defaults. It is based on the amount of new foreign financing that is needed to avoid a default or an import adjustment, expressed as a proportion of the country's sources of foreign currency. As the need for new foreign financing increases, so does a country's financial vulnerability. The indicator has a higher correlation with default episodes than other indicators used in previous studies. In addition, the level at which it leads to a high probability of default is comparable across countries.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/53.

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    Length: 33
    Date of creation: 01 Mar 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/53
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    1. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques.
    2. Carmen M. Reinhart, 2002. "Default, Currency Crises and Sovereign Credit Ratings," NBER Working Papers 8738, National Bureau of Economic Research, Inc.
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    7. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview," NBER Working Papers 6833, National Bureau of Economic Research, Inc.
    8. Stein, Jerome L & Paladino, Giovanna, 2001. "Country Default Risk: An Empirical Assessment," Australian Economic Papers, Wiley Blackwell, vol. 40(4), pages 417-36, December.
    9. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
    10. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
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