“Rules of Thumb” for Sovereign Debt Crises

Author/Editor:

Nouriel Roubini ; Paolo Manasse

Publication Date:

March 1, 2005

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:

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.

Series:

Working Paper No. 05/42

Subject:

English

Publication Date:

March 1, 2005

ISBN/ISSN:

9781451860610/1018-5941

Stock No:

WPIEA2005042

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

32

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