'Rules of Thumb' for Sovereign Debt Crises

33 Pages Posted: 10 Jan 2006

See all articles by Nouriel Roubini

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Paolo Manasse

Università degli Studi di Bologna - Department of Economics; IGIER, Bocconi University; International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: March 2005

Abstract

This paper contains an empirical investigation of the set of economic and political conditions that are associated with a likely occurrence of a sovereign debt crisis. We use a new statistical approach (Binary Recursive Tree) that allows us to derive a collection of rules of thumb that help identify the typical characteristics of defaulters. We find that not all crises are equal: they differ depending on whether the government faces insolvency, illiquidity, or various macroeconomic risks. We also characterize the set of fundamentals that can be associated with a relatively risk free zone. This classification is important for discussing appropriate policy options to prevent crises and improve response time and prediction.

Keywords: Sovereign debft, crises, default

JEL Classification: F33, F34, F37

Suggested Citation

Roubini, Nouriel and Manasse, Paolo, 'Rules of Thumb' for Sovereign Debt Crises (March 2005). IMF Working Paper No. 05/42. Available at SSRN: https://ssrn.com/abstract=874264

Nouriel Roubini (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Paolo Manasse

Università degli Studi di Bologna - Department of Economics ( email )

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IGIER, Bocconi University

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International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

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