Sovereign Debt Crises in Latin America: A Market Pressure Approach

44 Pages Posted: 31 Dec 2013 Last revised: 29 Dec 2016

See all articles by Tjeerd M. Boonman

Tjeerd M. Boonman

Banco de Mexico - Financial Stability Division

Jan P. A. M. Jacobs

University of Groningen - Faculty of Economics and Business

Gerard H. Kuper

University of Groningen - Faculty of Economics and Business

Date Written: November 30, 2013

Abstract

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

Boonman, Tjeerd M. and Jacobs, Jan P.A.M. and Kuper, Gerard H., Sovereign Debt Crises in Latin America: A Market Pressure Approach (November 30, 2013). Emerging Markets Finance and Trade, Vol. 51, No. sup6, 2015. Available at SSRN: https://ssrn.com/abstract=2373363 or http://dx.doi.org/10.2139/ssrn.2373363

Tjeerd M. Boonman (Contact Author)

Banco de Mexico - Financial Stability Division ( email )

Av. 5 de Mayo 18
Piso 4
Mexico City, 06059
Mexico
+52 55 5237 2000 ext 2047 (Phone)

Jan P.A.M. Jacobs

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Gerard H. Kuper

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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