Article ID Journal Published Year Pages File Type
967567 Journal of Multinational Financial Management 2006 22 Pages PDF
Abstract
The paper sets out to explore the factors affecting the credit quality of the Latin American region. Specifically, a logit framework is employed based on macroeconomic and financial data to determine the causes of Latin American debt crises in the last two decades. The analysis uses a modification of the default indicator to explicitly incorporate country arrear capacity. A number of domestic and international signals are found to be important in determining earlier as well as recent incidents. Domestic fundamentals, however, bear a much heavier weight than global conditions, implying that policy-makers still enjoy some freedom in preventing crises by monitoring country vulnerability. Furthermore, the study focuses on the out-of-sample classification accuracy of the proposed estimator using various criteria and provides 1-, 2- and 3-year-ahead forecasts for country default probabilities. Predictive performance is satisfactory with a reasonable reduction in accuracy in the out-of-sample period. Nevertheless, the findings indicate an upward bias towards type II errors.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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