Work

Do countries default in bad times? The role of alternative detrending techniques

Year: 2024

Type: article

Abstract: Quantitative models of sovereign debt predict that countries should default during deep recessions. However, empirical research on sovereign debt has found a surprisingly large share of “good times” defaults (i.e., defaults that happen when GDP is above trend). Existing evidence also indicates that, on average, defaults happen when output is close to potential. This paper reassesses the empirical evidence and shows that the detrending technique proposed by Hamilton (2018) yields results that are closer to the predictions of standard quantitative models of sovereign debt.

Source: Economics Letters

DOI: 10.1016/j.econlet.2024.112076

Author: Ugo Panizza

Institution: Graduate Institute of International and Development Studies

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,980

OpenAlex ID: W4404726733

FWCI: 0.362

Cites: 21

Cited by: 5

Related to: 10