Model-Based Estimation of Sovereign Default

37 Pages Posted: 23 Oct 2017 Last revised: 3 Aug 2018

Inci Gumus

Sabanci University

Junko Koeda

Waseda University - Graduate School of Economics; Waseda University - School of Political Science and Economics

Date Written: July 27, 2018

Abstract

We estimate a canonical sovereign default model from Arellano (2008) for Argentina via maximum simulated likelihood estimation to understand how well it performs in terms of predicting default events. The estimated model accounts for the overall default patterns of Argentina and closely matches the default data. Out-of-sample forecasting shows that the model performs better than a logit model in predicting the onset of default events. In terms of the business cycle statistics, the findings of the model are consistent with the data and Arellano (2008), with some caveats.

Keywords: Sovereign Debt, Default Risk, Maximum Simulated Likelihood Estimation

JEL Classification: C13, E43, F34, O11, O19

Suggested Citation

Gumus, Inci and Koeda, Junko, Model-Based Estimation of Sovereign Default (July 27, 2018). Available at SSRN: https://ssrn.com/abstract=3056539 or http://dx.doi.org/10.2139/ssrn.3056539

Inci Gumus

Sabanci University ( email )

Junko Koeda (Contact Author)

Waseda University - Graduate School of Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

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