Predicting Sovereign Debt Crises

Author/Editor:

Axel Schimmelpfennig ; Nouriel Roubini ; Paolo Manasse

Publication Date:

November 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We develop an early-warning model of sovereign debt crises. A country is defined to be in a debt crisis if it is classified as being in default by Standard & Poor's, or if it has access to nonconcessional IMF financing in excess of 100 percent of quota. By means of logit and binary recursive tree analysis, we identify macroeconomic variables reflecting solvency and liquidity factors that predict a debt-crisis episode one year in advance. The logit model predicts 74 percent of all crises entries while sending few false alarms, and the recursive tree 89 percent while sending more false alarms.

Series:

Working Paper No. 2003/221

Subject:

Debt default Early warning systems External debt Financial crises Public debt

English

Publication Date:

November 1, 2003

ISBN/ISSN:

9781451875256/1018-5941

Stock No:

WPIEA2212003

Pages:

41

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