Public Debt Targeting An Application to the Caribbean
IMF Working Papers, August 1, 2011
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- Public Debt Targeting An Application to the Caribbean
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Bibliographic details
- Authors: Alejandro D Guerson, Giovanni Melina
- Published: August 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463902148.001
Overview of the proposed framework
- The paper proposes a fiscal policy framework called Public Debt Targeting.
- Objective: smooth primary spending over the business cycle while remaining consistent with public debt sustainability.
- Implementation mechanism:
- Government announces a commitment to a public debt band trajectory over the medium term.
- Government sequentially announces primary expenditures for the next budget cycle.
- Primary expenditures are determined recursively based on the history of shocks.
Key distinctions from existing approaches
- Public Debt Targeting differs from a structural balance rule by internalizing the effect of deterioration in creditworthiness from fiscal deficits and public debt accumulation.
- Channels affected by creditworthiness deterioration listed in the source:
- sovereign spreads
- interest rates
- exchange rates
- economic activity
Application and empirical context
- The framework is applied to Caribbean economies.
- Empirical context from the source:
- Caribbean economies "in general show high levels of public debt and procyclical primary expenditure."
Main themes and analytical focus
- Budget planning and preparation
- Expenditure: envelope, growth, impulse, simulation, stance, vis-à-vis GDP
- Fiscal policy and fiscal stance
- Public debt and public debt sustainability
- Public financial management (PFM)
- Political economy considerations
- Interest expenditure, potential GDP, real GDP