Country Bankrupt probability measure ( verze podle IS na FSV )
| Author: | Mgr. Vojtěch Seman |
|---|---|
| Year: | 2011 - summer |
| Leaders: | |
| Consultants: | |
| Work type: | Finance, Financial Markets and Banking Masters |
| Language: | English |
| Pages: | 70 |
| Awards and prizes: | |
| Link: | |
| Abstract: | The spread between interest rate and sovereign bond rate is commonly used in- dicator for country's probability to default. Existing literature proposes many di erent potential spread determinants but fails to agree on which of them are important. As a result, there is a considerable uncertainty about the cor- rect model explaining the spread. We address this uncertainty by employing Bayesian Model Averaging method (BMA). The BMA technique attempts to consider all the possible combinations of variables and averages them using a model t measure as weights. For this empirical exercise, we consider 20 di erent explanatory variables for a panel of 47 countries for the 1980-2010 period. Most of the previously suggested determinants were attributed high inclusion probabilities. Only the "foreign exchange reserves growth" and the "exports growth" scored low by their inclusion probabilities. We also nd a role of variables previously not included in the literature's spread determinants | "openness" and "unemployment" which rank high by the inclusion probability. These results are robust to a wide range of both parameter and model priors. |
