Predicting Sovereign Debt Crises

ByAxel Schimmelpfennig, Nouriel Roubini, Paolo Manasse

November 1, 2003

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.

Subject: Debt default, Early warning systems, External debt, Financial crises, Public debt

Keywords: Africa, crises episode, crisis definition, crisis entry, crisis exit, crisis probability, currency crisis, debt crises episode, debt crisis, Debt default, debt-crisis entry, debt-crisis episode, debt-crisis event, debt-crisis indicator, debt-servicing difficulties, debt-servicing obligation, debt-servicing pressure, Early warning systems, Early-warning system, probability rise, sovereign debt crises, sovereign default, WP

Pages:
41
Volume:
2003
DOI:
https://doi.org/10.5089/9781451875256.001
Issue:
221
Series:
Working Paper No. 2003/221
Stock No:
WPIEA2212003
ISBN:
9781451875256
ISSN:
1018-5941

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