A Risk-Based Debt Sustainability Framework: Incorporating Balance Sheets and Uncertainty
February 1, 2008
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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.
Subject: Debt sustainability, Debt sustainability analysis, Foreign currency debt, Local currency debt, Public debt
Keywords: currency debt, debt, risk premium, WP
Pages:
25
Volume:
2008
DOI:
Issue:
040
Series:
Working Paper No. 2008/040
Stock No:
WPIEA2008040
ISBN:
9781451869026
ISSN:
1018-5941
