Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey

 
Author/Editor: Tanner, Evan ; Samaké, Issouf
 
Publication Date: December 01, 2006
 
Electronic Access: Free Full text (PDF file size is 616KB).
Use the free Adobe Acrobat Reader to view this PDF file

 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper examines the sustainability of fiscal policy under uncertainty in three emerging market countries, Brazil, Mexico, and Turkey. For each country, we estimate a vector autoregression (VAR) that includes fiscal and macroeconomic variables. Retrospectively, a historical decomposition shows by how much debt accumulation reflects unsustainable policy, adverse shocks, or both. Prospectively, Monte Carlo techniques reveal the primary surplus that is required to keep the debt/GDP ratio from rising in all but the worst 50 percent, 25 percent, and 10 percent of circumstances. Such a value-at-risk approach presents a clearer menu of policy options than currently used frameworks.
 
Series: Working Paper No. 06/295
Subject(s): Fiscal policy | Brazil | Mexico | Turkey | Emerging markets | Public debt | Economic models

Author's Keyword(s): Tax smoothing | sustainability | vector autoregression | historical decomposition | primary surplus
 
English
Publication Date: December 01, 2006
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA2006295 Pages: 42
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
Please address any questions about this title to publications@imf.org