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 (Classification and Regression 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.

Rules of thumb for sovereign debt crises

MANASSE, PAOLO LUCIANO ADALBERTO;
2009

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 (Classification and Regression 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.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/95106
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