Early warning systems for sovereign debt crises: The role of heterogeneity |
| |
Authors: | Ana-Maria Fuertes Elena Kalotychou |
| |
Affiliation: | Faculty of Finance, Cass Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, UK |
| |
Abstract: | Sovereign default models that differ in their treatment of unobservable country, regional and time heterogeneities are systematically compared. The analysis is based on annual data over the 1983-2002 period for 96 developing economies. Inference-based criteria and parameter plausibility overwhelmingly favour more complex models that allow the link between the probability response and the fundamentals to vary over time and across countries. However, out-of-sample forecast evaluation using several loss functions and equal-predictive-ability tests suggests that simplicity beats complexity. Parsimonious pooled logit models produce the most accurate sovereign default forecasts and outperform the naive benchmarks. |
| |
Keywords: | Credit risk Default probability Emerging markets Loss function Panel logit Predictive performance Unobserved heterogeneity |
本文献已被 ScienceDirect 等数据库收录! |