Assessing macro-fiscal risk for Latin American and Caribbean countries

Arbeitspapier

This paper provides a comprehensive early warning system (EWS) that balances the classical signaling approach with the best-realized machine learning (ML) model for predicting fiscal stress episodes. Using accumulated local effects (ALE), we compute a set of thresholds for the most informative variables that drive the correlation between predictors. In addition, to evaluate the main country risks, we propose a leading fiscal risk indicator, highlighting macro, fiscal and institutional attributes. Estimates from different models suggest significant heterogeneity among the most critical variables in determining fiscal risk across countries. While macro variables have higher relevance for advanced countries, fiscal variables were more significant for Latin American and Caribbean (LAC) and emerging economies. These results are consistent under different liquidity-solvency metrics and have deepened since the global financial crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IDB Working Paper Series ; No. IDB-WP-1346

Classification and Topics

• Classification: Wirtschaft ; Forecasting Models; Simulation Methods ; National Debt; Debt Management; Sovereign Debt ; Fiscal Policy
• Subject: forecasting ; early warning system ; fiscal policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Valencia, Oscar M. ; Díaz, Juan Camilo ; Parra, Diego A.
• Event: Veröffentlichung
• (who): Inter-American Development Bank (IDB)
• (where): Washington, DC
• (when): 2022

Further information

• DOI: doi:10.18235/0004530
• Last update: 10.03.2025, 11:41 AM CET