Predicting Sovereign Debt Crises
Università degli Studi di Bologna - Department of Economics; IGIER, Bocconi University; International Monetary Fund (IMF) - Fiscal Affairs Department
New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)
International Monetary Fund (IMF)
IMF Working Paper No. 03/221
We develop an early-warning model of sovereign debt crises. A country is defined to be in a debt crisis if it is classified as being in default by Standard & Poor's, or if it has access to nonconcessional IMF financing in excess of 100 percent of quota. By means of logit and binary recursive tree analysis, we identify macroeconomic variables reflecting solvency and liquidity factors that predict a debt-crisis episode one year in advance. The logit model predicts 74 percent of all crises entries while sending few false alarms, and the recursive tree 89 percent while sending more false alarms.
Number of Pages in PDF File: 41
Keywords: Early-warning system, sovereign debt crises, sovereign default
JEL Classification: H63, E66, C53
Date posted: February 14, 2006
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