Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey
December 1, 2006
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: 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.
Subject: Exchange rates, Financial services, Fiscal policy, Fiscal sustainability, Foreign exchange, Public debt, Real interest rates
Keywords: deficit shock, exchange rate, Exchange rates, Fiscal sustainability, GDP growth, GDP p, GDP ratio, Global, Historical Decomposition, Primary Surplus, Real interest rates, Sustainability, Tax smoothing, time horizon, Vector Autoregression, WP
Pages:
42
Volume:
2006
DOI:
Issue:
295
Series:
Working Paper No. 2006/295
Stock No:
WPIEA2006295
ISBN:
9781451865554
ISSN:
1018-5941
