A Simple Stochastic Approach to Debt Sustainability Applied to Lebanon
IMF Working Papers, April 1, 2008
Source details
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- A Simple Stochastic Approach to Debt Sustainability Applied to Lebanon
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Bibliographic details
- Authors: E. H. Gardner, Julian Di Giovanni
- Published: April 1, 2008
- Series: IMF Working Papers
Objective and approach
- Applies a simple probabilistic approach to debt sustainability analysis to the case of Lebanon.
- Derives "fan charts" to depict the probability distribution of the government debt to GDP ratio under a medium-term adjustment scenario.
- Shocks considered: GDP growth and interest rates.
- Distribution of shocks is derived from the past shocks to these variables and the related variance covariance.
- Does not consider independent fiscal policy shocks or the endogenous policy response to shocks because the focus is on assessing the sustainability of a particular policy scenario.
Analytical output and findings
- Produces probabilistic "fan charts" showing the distribution of government debt-to-GDP ratio under the specified scenario and shocks.
- Shows how shocks to GDP growth and interest rates affect the probability distribution of debt dynamics (presentation via fan charts).
Scope, assumptions, and limitations
- Focused on a particular policy scenario (medium-term adjustment scenario).
- Shocks modeled only for GDP growth and interest rates; fiscal policy shocks and endogenous policy responses are excluded by design.
- Shock distribution estimated from historical shocks and the variance-covariance of those shocks.
Subjects and keywords
- Subject: Debt sustainability analysis, Deposit rates, Fiscal policy, Public debt, Real interest rates
- Keywords: cost of funds, debt ratio, Eurobond rate, WP