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Early Warning System of Government Debt Crises

Author

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  • Christian Dreger
  • Konstantin A. Kholodilin

Abstract

The European debt crisis has revealed serious deficiencies and risks on a proper functioning of the monetary union. Against this backdrop, early warning systems are of crucial importance. In this study that focuses on euro area member states, the robustness of early warning systems to predict crises of government debt is evaluated. Robustness is captured via several dimensions, such as the chronology of past crises, econometric methods, and the selection of indicators in forecast combinations. The chosen approach is shown to be crucial for the results. Therefore, the construction of early warning systems should be based on a wide set of variables and methods in order to be able to draw reliable conclusions.

Suggested Citation

  • Christian Dreger & Konstantin A. Kholodilin, 2018. "Early Warning System of Government Debt Crises," Discussion Papers of DIW Berlin 1724, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1724
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.580043.de/dp1724.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Sovereign debt crises; multiple bubbles; signal approach; logit; panel data model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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