IMF Working Papers

Predicting Fiscal Crises

By Svetlana Cerovic, . Kerstin Gerling, Andrew Hodge, Paulo A Medas

August 3, 2018

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Svetlana Cerovic, . Kerstin Gerling, Andrew Hodge, and Paulo A Medas. Predicting Fiscal Crises, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper identifies leading indicators of fiscal crises based on a large sample of countries at different stages of development over 1970-2015. Our results are robust to different methodologies and sample periods. Previous literature on early warning sistems (EWS) for fiscal crises is scarce and based on small samples of advanced and emerging markets, raising doubts about the robustness of the results. Using a larger sample, our analysis shows that both nonfiscal (external and internal imbalances) and fiscal variables help predict crises among advanced and emerging economies. Our models performed well in out-of-sample forecasting and in predicting the most recent crises, a weakness of EWS in general. We also build EWS for low income countries, which had been overlooked in the literature.

Subject: Cyclical indicators, Early warning systems, Expenditure, Financial crises, Output gap

Keywords: Approaching crisis, Crises start, Crisis probability, Crisis run-up, Debt crisis, Fiscal crisis, Missed crisis, WP

Publication Details

  • Pages:

    42

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/181

  • Stock No:

    WPIEA2018181

  • ISBN:

    9781484372555

  • ISSN:

    1018-5941

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