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Predicting Fiscal Crises

Author

Listed:
  • Ms. Svetlana Cerovic
  • Mrs. Kerstin Gerling
  • Andrew Hodge
  • Mr. Paulo A Medas

Abstract

This paper identifies leading indicators of fiscal crises based on a large sample of countries at different stages of development over 1970-2015. Our results are robust to different methodologies and sample periods. Previous literature on early warning sistems (EWS) for fiscal crises is scarce and based on small samples of advanced and emerging markets, raising doubts about the robustness of the results. Using a larger sample, our analysis shows that both nonfiscal (external and internal imbalances) and fiscal variables help predict crises among advanced and emerging economies. Our models performed well in out-of-sample forecasting and in predicting the most recent crises, a weakness of EWS in general. We also build EWS for low income countries, which had been overlooked in the literature.

Suggested Citation

  • Ms. Svetlana Cerovic & Mrs. Kerstin Gerling & Andrew Hodge & Mr. Paulo A Medas, 2018. "Predicting Fiscal Crises," IMF Working Papers 2018/181, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/181
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    References listed on IDEAS

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    Cited by:

    1. Rani Wijayanti & Sagita Rachmanira, 2020. "Early Warning System for Government Debt Crisis in Developing Countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 103-124.
    2. Antoine Levy & Mr. Luca A Ricci & Alejandro M. Werner, 2020. "The Sources of Fiscal Fluctuations," IMF Working Papers 2020/220, International Monetary Fund.
    3. Moreno Badia, Marialuz & Medas, Paulo & Gupta, Pranav & Xiang, Yuan, 2022. "Debt is not free," Journal of International Money and Finance, Elsevier, vol. 127(C).
    4. Stéphanie Pamies & Nicolas Carnot & Anda Pătărău, 2021. "Do Fundamentals Explain Differences between Euro Area Sovereign Interest Rates?," European Economy - Discussion Papers 141, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Jean‐Marc B. Atsebi, 2024. "Igniting growth surges: Lessons from the past," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(2), pages 525-569, April.
    6. Ryota Nakatani, 2023. "Fiscal crises, decentralization, and indiscipline," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 459-478, November.
    7. Rho, Caterina & Saenz, Manrique, 2021. "Financial stress and the probability of sovereign default," Journal of International Money and Finance, Elsevier, vol. 110(C).

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