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A simulation estimation analysis of the external debt crises of developing countries

Hajivassiliou, Vassilis (1994) A simulation estimation analysis of the external debt crises of developing countries. Journal of Applied Econometrics, 9 (2). pp. 109-131. ISSN 1099-1255

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Identification Number: 10.1002/jae.3950090202


In this paper we develop models of the incidence and extent of external financing crises of developing countries, which lead to multiperiod multinomial discrete choice and discrete/continuous econometric specifications with flexible correlation structures in the unobservables. We show that estimation of these models based on simulation methods has attractive statistical properties and is computationally tractable. Three such simulation estimation methods are exposited, analysed theoretically, and used in practice: a method of smoothly simulated maximum likelihood (SSML) based on a smooth recursive conditioning simulator (SRC), a method of simulated scores (MSS) based on a Gibbs sampling simulator (GSS), and an MSS estimator based on the SRC simulator. The data set used in this study comprises 93 developing countries observed through the 1970-88 period and contains information on external financing responses that was not available to investigators in the past. Moreover, previous studies of external debt problems had to rely on restrictive correlation structures in the unobservables to overcome otherwise intractable computational difficulties. The findings show that being able for the first time to allow for flexible correlation patterns in the unobservables through estimation by simulation has a substantial impact on the parameter estimates obtained from such models. This suggests that past empirical results in this literature require a substantial re-evaluation.

Item Type: Article
Official URL:
Additional Information: © 1994 John Wiley & Sons Ltd
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Date Deposited: 09 May 2008 11:48
Last Modified: 20 Nov 2019 06:26

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