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'Rules of Thumb' for Sovereign Debt Crises

  • Paolo Manasse

    (Universita' di Bologna &IMF)

  • Nouriel Roubini

    (NYU Stern School of Business)

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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Paper provided by EconWPA in its series International Finance with number 0509003.

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Date of creation: 06 Sep 2005
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Handle: RePEc:wpa:wuwpif:0509003
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  1. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  2. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
  3. Reinhart, Carmen, 2002. "Default, currency crises, and sovereign credit ratings," MPRA Paper 13917, University Library of Munich, Germany.
  4. International Monetary Fund, 1998. "The Relative Importance of Political and Economic Variables in Creditworthiness Ratings," IMF Working Papers 98/46, International Monetary Fund.
  5. Guillermo Larraín & Helmut Reisen & Julia von Maltzan, 1997. "Emerging Market Risk and Sovereign Credit Ratings," OECD Development Centre Working Papers 124, OECD Publishing.
  6. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
  7. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity; Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund.
  8. Nigel Andrew Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
  9. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
  10. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
  11. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  12. Curzio Giannini & Carlo Cottarelli, 2002. "Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending," IMF Working Papers 02/193, International Monetary Fund.
  13. Andrew Berg & Catherine Pattillo, 1999. "Are Currency Crises Predictable? A Test," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1.
  14. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
  15. Swart R. Ghosh & Atish R. Ghosh, 2002. "Structural Vulnerability and Currency Crises," IMF Working Papers 02/9, International Monetary Fund.
  16. Lee, Suk Hun, 1993. "Are the credit ratings assigned by bankers based on the willingness of LDC borrowers to repay?," Journal of Development Economics, Elsevier, vol. 40(2), pages 349-359, April.
  17. Marcos Chamon & Paolo Manasse & Alessandro Prati, 2007. "Can We Predict the Next Capital Account Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 270-305, June.
  18. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  19. Bennett Sutton & Luis Catão, 2002. "Sovereign Defaults; The Role of Volatility," IMF Working Papers 02/149, International Monetary Fund.
  20. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers.
  21. repec:rus:hseeco:123922 is not listed on IDEAS
  22. Andrew Berg & Eduardo Borensztein & Catherine A. Pattillo, 2004. "Assessing Early Warning Systems; How Have they Worked in Practice?," IMF Working Papers 04/52, International Monetary Fund.
  23. Diego Saravia & Ashoka Mody, 2003. "Catalyzing Capital Flows; Do IMF-Supported Programs Work As Commitment Devices?," IMF Working Papers 03/100, International Monetary Fund.
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