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“Rules of Thumb” for Sovereign Debt Crises
Author:
Nouriel Roubininull

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Paolo Manassenull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 042
Language:
English
Publication Date:
01 Mar 2005
DOI:
https://doi.org/10.5089/9781451860610.001
ISBN:
9781451860610
ISSN:
1018-5941
Pages:
32
Keywords:
WP; debt crisis; crisis episode; crisis probability; debt path; risk type
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2005: Issue 042