Rules of Thumb" for Sovereign Debt Crises"

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.
Publication date: March 2005
ISBN: 9781451860610
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Finance , Finance , International - Economics , International - Economics , crises , debt crisis , external debt , short-term debt , debt crises , International Monetary Arrangements and Institutions , International Lending and Debt Problems , International Finance Forecasting and Simulation

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