A Multinomial Approach to Early Warning Systems for Debt Crises

This paper develops an early warning system for sovereign debt crises, broadly defined as episodes of outright default, failure of a country to be current on external obligations and substantial access to IMF resources. It estimates a multinomial logit model that makes it possible to differentiate between three regimes labelled ‘tranquil’, ‘pre-crisis’ and ‘adjustment’. The model includes a large set of macroeconomic variables and is able to predict, in-sample, 78 per cent of onsets of crisis while sending false alarms in 34 per cent of tranquil cases; its out-of-sample performance is very similar, with 70 per cent of entries into crisis correctly predicted and 20 per cent of tranquil cases triggering false alarms.emerging markets, early warning systems, debt crises, default

Existence of approximate current-vortex sheets near the onset of instability

The paper is concerned with the free boundary problem for 2D current-vortex sheets in ideal incompressible magneto-hydrodynamics near the transition point between the linearized stability and instability. In order to study the dynamics of the discontinuity near the onset of the instability, Hunter and Thoo have introduced an asymptotic quadratically nonlinear integro-differential equation for the amplitude of small perturbations of the planar discontinuity. The local-in-time existence of smooth solutions to the Cauchy problem for such amplitude equation was already proven, under a suitable stability condition. However, the solution found there has a loss of regularity (of order two) from the initial data. In the present paper, we are able to obtain an existence result of solutions with optimal regularity, in the sense that the regularity of the initial data is preserved in the motion for positive times

Well-posedness of the linearized problem for contact MHD discontinuities

We study the free boundary problem for contact discontinuities in ideal compressible magnetohydrodynamics (MHD). They are characteristic discontinuities with no flow across the discontinuity for which the pressure, the magnetic field and the velocity are continuous whereas the density and the entropy may have a jump. Under the Rayleigh-Taylor sign condition $[\partial p/\partial N]<0$ on the jump of the normal derivative of the pressure satisfied at each point of the unperturbed contact discontinuity, we prove the well-posedness in Sobolev spaces of the linearized problem for 2D planar MHD flows.Comment: 40 page

Two-Dimensional Vortex Sheets for the Nonisentropic Euler Equations: Nonlinear Stability

We show the short-time existence and nonlinear stability of vortex sheets for the nonisentropic compressible Euler equations in two spatial dimensions, based on the weakly linear stability result of Morando--Trebeschi (2008) [20]. The missing normal derivatives are compensated through the equations of the linearized vorticity and entropy when deriving higher-order energy estimates. The proof of the resolution for this nonlinear problem follows from certain \emph{a priori} tame estimates on the effective linear problem {in the usual Sobolev spaces} and a suitable Nash--Moser iteration scheme.Comment: to appear in: J. Differential Equations 2018. arXiv admin note: substantial text overlap with arXiv:1707.0267

Characteristic boundary value problems: estimates from H1 to L2

Motivated by the study of certain non linear free-boundary value problems for hyperbolic systems of partial differential equations arising in Magneto-Hydrodynamics, in this paper we show that an a priori estimate of the solution to certain boundary value problems, in the conormal Sobolev space H1_tan, can be transformed into an L2 a priori estimate of the same problem

Emerging Markets Spreads and Global Financial Conditions

In this article, we analyse how much of the reduction in emerging markets spreads can be ascribed to specific factors - linked to the improvement in the 'fundamentals' of a given country - rather than to common factors - linked to global liquidity conditions and agentsÂ’ degree of risk aversion. By means of factor analysis, we find that a single common factor is able to explain a large part of the co-variation in emerging market economies spreads observed in the last four years; on its turn, this common factor might be traced back mainly to financial markets volatility. Due to the particularly benign global financial conditions in recent years, spreads seem to have declined to levels lower than those warranted by improved fundamentals. As a consequence, EMEs do remain vulnerable to sudden shift in financial market conditions.emerging markets, spreads, factor analysis

Emerging market spreads in the recent financial turmoil

This work examines how much of the variation in emerging market economies' (EMEs) spreads can be ascribed to 'country-specific' factors rather than to 'common' factors, once the existence of an interaction between the state of macroeconomic fundamentals and global financial conditions is properly taken into account. By means of factor analysis we find that a single common factor is able to explain a large part of the covariation in EME spreads in the period January 1998-June 2008; in turn, the common factor can be traced back mainly to financial market volatility. Once we have controlled for a set of idiosyncratic macroeconomic fundamentals, the common factor turns out to be a significant determinant of EME spread variations in the recent period of financial turmoil. Finally, the interaction term between global financial conditions and the state of macroeconomic fundamentals plays a significant role in most of the countries, allowing us to show that, for some less virtuous economies, the negative effects of a worsening of global conditions have been magnified by weakening domestic macroeconomic fundamentals.Sovereign spreads, emerging markets, factor analysis, international finance

On a priori energy estimates for characteristic boundary value problems

Motivated by the study of certain non linear free-boundary value problems for hyperbolic systems of partial differential equations arising in Magneto-Hydrodynamics, in this paper we show that an a priori estimate of the solution to certain boundary value problems, in the conormal Sobolev space H1_tan, can be transformed into an L2 a priori estimate of the same problem