Unpleasant surprises : sovereign default determinants and prospects

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.Debt Markets,External Debt,Bankruptcy and Resolution of Financial Distress,Economic Theory&Research,Currencies and Exchange Rates

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

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

Drivers of Convergence in Eleven Eastern European Countries, Policy Research Working Paper, 6185

This paper investigates the drivers of growth and prosperity in a group of eleven European countries -- Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, and Slovakia (the EU11). Since the EU11 began the transformation process, this group of emerging countries has made impressive strides as developing market economies and is anchoring development in European Union institutions. There are reasons to believe that the convergence of EU11 income per capita to Western European levels will continue, but will proceed more slowly. The paper concludes that trade and financial integration have sped along at a spectacular pace in the EU11 in the recent past, although trade in modern services and the integration of government bond and equity markets are somewhat behind. As in the rest of Europe, demographic developments will pose huge challenges for the sustainability of public finance in the EU11 economies. In the next several decades, the EU11 labor force is expected to contract more than labor forces in the rest of the European Union, making it even more urgent that countries in the region reform pension systems, change migration policy, and find incentives to attract talent to the region. Closing the gap with the rest of the European Union in educational attainment levels and improving education quality might significantly soften the constraints imposed by the demographic threats and produce sizable returns in terms of additional income convergence