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Optimal prediction rule: an application to debt reschedulings

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  • Nikiforos Laopodis

Abstract

This paper develops and tests a new model for assessing country credit risk and is called Multivariate Cumulative Sum. This model is dynamic in nature and allows the user to predict early enough a financial distress that could lead to debt rescheduling. The findings suggest that the model is capable of detecting potential debt - repayment difficulties as early as three years in advance. This has serious financing implications, since the lender can have ample time to re-evaluate his investment opportunities towards that country and thus avoid or limit a disastrous financial exposure.

Suggested Citation

  • Nikiforos Laopodis, 1999. "Optimal prediction rule: an application to debt reschedulings," Applied Economics, Taylor & Francis Journals, vol. 31(1), pages 17-26.
    • Handle: RePEc:taf:applec:v:31:y:1999:i:1:p:17-26
    DOI: 10.1080/000368499324525
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    Cited by:

    1. Vladimir Teles & Joaquim Andrade, 2008. "Monetary policy and country risk," Applied Economics, Taylor & Francis Journals, vol. 40(15), pages 2021-2028.

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