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Table VI. Comparing actual and out-of-sample predicted spreads
This table reports results of comparing actual to predicted spreads. Panel A reports summary statistics for EMBI
spreads and predicted spreads. The sample corresponds to the spread regression sample of Table III. Panel B reports
estimates from regressions of EMBI spreads on predicted spreads. To control for outliers, predicted spreads are
winsorized, which results in replacing the two largest and the two smallest spread observations. t-statistics (reported
in parentheses) are calculated using standard errors which are robust and clustered by year. ** denotes significant at
1%; * significant at 5%;
+
significant at 10%.
Regression equation (Panel B):
Mean 376 229
Median 265 87
St. Dev. 328 426
p5 60 17
p95 1072 941
Observations: 276
(1) (2) (3) (4) (5)
0.72 0.67 0.41
(10.70)** (9.49)** (4.56)**
Global variables
10.4 15.2 15.1 12.6
(2.70)* (3.67)** (3.63)** (3.39)**
1.0 1.6 1.4 1.0
(1.45) (1.65) (1.51) (1.38)
0.31 0.68 0.81 0.56
(1.32) (1.79)
+
(2.23)* (2.21)*
0.13 -0.74 -0.81 -0.34
(0.20) (1.11) (1.20) (0.58)
Control variables
Credit rating X X
Constant 222.9 -225.4 -379.4 -616.2 -505.6
(7.18)** (1.77)
+
(1.82)
+
(2.87)* (3.57)**
Number of observations 276 276 269 269 269
Adjusted R
2
44.8% 49.0% 13.2% 52.3% 61.3%
TED spread (TED)
Predicted spread (spread_pred)
VIX index(VIX)
Default yield spread (DEF)
Treasury 10-year yield (r_10year)
Panel B: Regression of actual on predicted spreads
EMBI
spread
Predicted
spread
Panel A: Summary statistics of predicted spreads and default probabilities
c | | | | | o + + + + + + + = dummies TED year r DEF VIX pred spread spread
5 4 3 2 1
10 _ _
100
300
500
700
900
1100
1300
1500
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
date
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EMBI
Commodity_Index
Figure 1. EMBI spreads and Commodity Prices: This figure plots EMBI spread (from J .P. Morgan, monthly spread
over U.S. Treasuries), weighted by country external debt, and the CRB commodity price index (in logs).
ARG
BRA
BUL
CDI
CHI
CHN
COL
CRO
DMR
EGY
EQU
ESD
HUN
LEB
MAL
MEX MOR
PAK
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PER PHI
PLD
RUS
SAFSKO
THA
TUN
TUR
UKR
URU
VEN
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5 10 15 20 25
Volatility of terms of trade (%)
Figure 2. Volatility of terms of trade and EMBI spread. This graph plots mean EMBI
spreads (from J .P. Morgan, end-of-year spread over U.S. Treasuries) against mean
country volatility of terms of trade.
1
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5
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10 50 100 500 1000 2500
Predicted_spread
EMBI_spread Fitted_values
Figure 3. Actual and predicted spreads. This graph plots EMBI spreads (from J .P.
Morgan, end-of-year spread over U.S. Treasuries) against out-of-sample predicted
spreads using the logit model from Table V to calculate fitted probabilities of default.
0
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.6 1.1 2.1 4.5 11.9
EMBI spread Predicted spread
Figure 4. Spreads by average default probability. This graph plots average EMBI
spreads (from J .P. Morgan, end-of-year spread over U.S. Treasuries) and predicted
spreads by fitted default probability quintiles. We report the average default probability
for each quintile on the horizontal axis. The sample used corresponds to that in Table VI.