Credit Exposure and Sovereign Risk Analysis: The Case of South America

Frontiers in Finance and Economics, Vol. 1, pp. 46-56, 2004

Posted: 30 Mar 2005

See all articles by Elena Kalotychou

Elena Kalotychou

Cass Business School, City, University of London

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Abstract

This study makes use of a panel data framework to identify the economic signals that shape the debt repayment behaviour of the South American region. The paper employs a logit estimator with the endogenous variable based on country specific thresholds of default. A stepwise general to specific methodology is applied to identify the set of economic variables employed. The results indicate the stronger influence of domestic, rather than international, financial factors in determining default. The forecasting ability of the proposed estimator is evaluated through a cumulative three-year rolling prediction. Although the performance of the model seems satisfactory, the empirical findings indicate an upward bias signalling a possible type II error.

Keywords: Financial crises, Sovereign default, Logit modelling, Forecasting credit risk.

JEL Classification: F34, G15, G21

Suggested Citation

Kalotychou, Elena and Staikouras, Sotiris, Credit Exposure and Sovereign Risk Analysis: The Case of South America. Frontiers in Finance and Economics, Vol. 1, pp. 46-56, 2004, Available at SSRN: https://ssrn.com/abstract=679466

Elena Kalotychou (Contact Author)

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain

Sotiris Staikouras

City University - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

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