Sovereign Debt Crisis: Conceptual and Empirical Analysis

This paper investigates the determinants of sovereign debt crises by using cross-country data from 1977 to 2010. In particular, I focus on the structure of sovereign debt by analysing the debt composition (domestic versus external), maturity structure (short-term versus long-term), composition type (bank loans versus bond) and currency denomination (domestic currency versus foreign currency) of debts. I also assess whether the previous history of banking and currency crises affect the likelihood of a sovereign debt crisis. The results suggest that both the structures of debt and the past history of other financial crises are important determinants of debt crises. The results are robust when using alternative measures to understand the risks of sovereign debt. I also investigate the impacts of debt structure and past financial crises history on the levels and changes of foreign and local currency long-term debt credit ratings.