Sovereign Debt Crises in Latin America: A Market Pressure Approach
44 Pages Posted: 31 Dec 2013 Last revised: 29 Dec 2016
Date Written: November 30, 2013
We construct a continuous sovereign debt crisis index for four large Latin American countries for the period 1870-2012. Our sovereign debt crisis index is similar to the Exchange Market Pressure Index for currency crises, and the Money Market Pressure Index for banking crises. To obtain the optimal set of indicators and the optimal value of the threshold for dating crises we apply the Receiver Operating Characteristic (ROC) curve. We calculate our sovereign debt crisis index as a weighted average of three indicators, the debt to GDP ratio, the external interest rate spread and the exports to imports ratio. The continuous index allows a more advanced analysis of sovereign debt crises. We include two applications. In the first application we investigate the relationship between sovereign debt crises and the business cycle in Latin America. Our second application constructs a similar index for five European countries.
Keywords: sovereign debt crises, debt crisis index, Receiver Operating Characteristic (ROC) curve
JEL Classification: C25, G01, N26
Suggested Citation: Suggested Citation