Unpleasant Surprises: Sovereign Default Determinants and Prospects, Policy Research Working Papers, 5401

Bandiera, Luca and Crespo Cuaresma, Jesus and Vincelette, Gallina A. (2010) Unpleasant Surprises: Sovereign Default Determinants and Prospects, Policy Research Working Papers, 5401. World Bank, Washington.

Available under License Creative Commons Attribution 3.0 IGO (CC BY 3.0 IGO).

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This paper uses model averaging techniques to identify robust predictors of sovereign default episodes on a pooled database for 46 emerging economies over the period 1980-2004. Sovereign default episodes are defined according to Standard & Poor s or by non-concessional International Monetary Fund loans in excess of 100 percent of the country s quota. The authors find that, in addition to the level of indebtedness, the quality of policies and institutions is the best predictor of default episodes in emerging market countries with relatively low levels of external debt. For emerging market countries with a higher level of debt, macroeconomic stability plays a robust role in explaining differences in default probabilities. The paper provides evidence that model averaging can improve out-of-sample prediction of sovereign defaults, and draws policy conclusions for the current crisis based on the results.

Item Type: Paper
Additional Information: This paper - product of the Economic Policy and Debt Department, Poverty Reduction and Economic Management Network - is part of a larger effort in the department to identify and address developing country vulnerabilities in the face of financial and economic crisis. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at lbandiera@worldbank.org, gvincelette@worldbank.org, and jcrespo@wu.ac.at.
Depositing User: ePub Administrator
Date Deposited: 05 May 2017 09:17
Last Modified: 22 Oct 2019 00:41
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/61570/
URI: https://epub.wu.ac.at/id/eprint/5539


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