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Machine Learning Algorithm for Mid-Term Projection of the EU Member States’ Indebtedness

Author

Listed:
  • Silvia Zarkova

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

  • Dimitar Kostov

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

  • Petko Angelov

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

  • Tsvetan Pavlov

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

  • Andrey Zahariev

    (Department of Finance and Credit, Tsenov Academy of Economics, 5250 Svishtov, Bulgaria)

Abstract

The main research question addressed in the paper is related to the possibility of medium-term forecasting of the public debts of the EU member states. The analysis focuses on a broad range of indicators (macroeconomic, fiscal, monetary, global, and convergence) that influence the public debt levels of the EU member states. A machine learning prediction model using random forest regression was approbated with the empirical data. The algorithm was applied in two iterations—a primary iteration with 33 indicators and a secondary iteration with the 8 most significant indicators in terms of their influence and forecasting importance regarding the development of public debt across the EU. The research identifies a change in the medium term (2023–2024) in the group of the four most indebted EU member states, viz., that Spain will be replaced by France, which is an even more systemic economy, and will thus increase the group’s share of the EU’s GDP. The results indicate a logical scenario of rising interest rates with adverse effects for the fiscal imbalances, which will require serious reforms in the public sector of the most indebted EU member states.

Suggested Citation

  • Silvia Zarkova & Dimitar Kostov & Petko Angelov & Tsvetan Pavlov & Andrey Zahariev, 2023. "Machine Learning Algorithm for Mid-Term Projection of the EU Member States’ Indebtedness," Risks, MDPI, vol. 11(4), pages 1-17, April.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:4:p:71-:d:1114386
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    References listed on IDEAS

    as
    1. Grzegorz Dudek, 2022. "A Comprehensive Study of Random Forest for Short-Term Load Forecasting," Energies, MDPI, vol. 15(20), pages 1-19, October.
    2. Albonico, Alice & Tirelli, Patrizio, 2020. "Financial crises and sudden stops: Was the European monetary union crisis different?," Economic Modelling, Elsevier, vol. 93(C), pages 13-26.
    3. Olga Em & Georgi Georgiev & Sergey Radukanov & Mariana Petrova, 2022. "Assessing the Market Risk on the Government Debt of Kazakhstan and Bulgaria in Conditions of Turbulence," Risks, MDPI, vol. 10(5), pages 1-18, April.
    4. Della Posta, Pompeo, 2021. "Government size and speculative attacks on public debt," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 79-89.
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