<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This study develops an early warning signal (EWS) of government debt crisis using a panel data consisting of 43 developing countries over the period of 1960 to 2017. It employs two different methods: the noise to signal ratio to capture the signaling power of individual indicators; and the binomial logistic regression to construct a more general model. The binomial logistic regression offers a better predictive power relative to the noise to signal ratio. The binomial logistic regression can predict 61.5% of the government debt crisis 2 years in advance. An increase in inflation, government and private debt exposures, external debt to exports, ratio of short-term external debt to foreign exchange reserves, and the ratio of external interest payments to gross national income can signal an upcoming debt crisis. Similarly, a continuous decline in the gross domestic product (GDP) and government consumption also increase the likelihood of government debt crisis.</p></abstract>

This study develops an early warning signal (EWS) of government debt crisis using a panel data consisting of 43 developing countries over the period of 1960 to 2017. It employs two different methods: the noise to signal ratio to capture the signaling power of individual indicators; and the binomial logistic regression to construct a more general model. The binomial logistic regression offers a better predictive power relative to the noise to signal ratio. The binomial logistic regression can predict 61.5% of the government debt crisis 2 years in advance. An increase in inflation, government and private debt exposures, external debt to exports, ratio of short-term external debt to foreign exchange reserves, and the ratio of external interest payments to gross national income can signal an upcoming debt crisis. Similarly, a continuous decline in the gross domestic product (GDP) and government consumption also increase the likelihood of government debt crisis.

Early Warning System for Government Debt Crisis in Developing Countries

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution 4.0 Public License.

{"article-title":"Early Warning System for Government Debt Crisis in Developing Countries"}

This study develops an early warning signal (EWS) of government debt crisis using a panel data consisting of 43 developing countries over the period of 1960 to...

Early Warning System for Government Debt Crisis in Developing Countries

Published Online: Jul 16, 2020

Page range: 103 - 124

DOI: https://doi.org/10.2478/jcbtp-2020-0025

Keywords
Government debt crisis, Systemic risk, Macroprudential, sovereign debt crisis

© 2020 Rani Wijayanti et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 Public License.

Early Warning System for Government Debt Crisis in Developing Countries

Published Online: Jul 16, 2020

Page range: 103 - 124

DOI: https://doi.org/10.2478/jcbtp-2020-0025

KeywordsGovernment debt crisis, Systemic risk, Macroprudential, sovereign debt crisis

© 2020 Rani Wijayanti et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 Public License.

Keywords
Government debt crisis, Systemic risk, Macroprudential, sovereign debt crisis