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"Rules of thumb" for sovereign debt crises

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  • Manasse, Paolo
  • Roubini, Nouriel

Abstract

This paper investigates the economic and political conditions that are associated to the occurrence of a sovereign debt crisis. We use a new statistical approach (Classification and Regression 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.

Suggested Citation

  • Manasse, Paolo & Roubini, Nouriel, 2009. ""Rules of thumb" for sovereign debt crises," Journal of International Economics, Elsevier, vol. 78(2), pages 192-205, July.
    • Handle: RePEc:eee:inecon:v:78:y:2009:i:2:p:192-205
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    More about this item

    Keywords

    Sovereign debt Crises Default;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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