A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty

Author/Editor:

Dale F. Gray ; Elena Loukoianova ; Samuel W. Malone ; Cheng Hoon Lim

Publication Date:

February 1, 2008

Electronic Access:

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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 proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.

Series:

Working Paper No. 2008/040

Subject:

Debt sustainability Debt sustainability analysis Foreign currency debt Local currency debt Public debt

English

Publication Date:

February 1, 2008

ISBN/ISSN:

9781451869026/1018-5941

Stock No:

WPIEA2008040

Pages:

25

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