{
  "title": "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey",
  "publication": "IMF Working Papers, December 1, 2006",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/probabilistic-sustainability-of-public-debt-a-vector-autoregression-approach-for-brazil-20006",
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  "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.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Examines sustainability of fiscal policy under uncertainty in Brazil, Mexico, and Turkey.\n- For each country, estimates a vector autoregression (VAR) that includes fiscal and macroeconomic variables.\n- Retrospectively uses historical decomposition to attribute debt accumulation to unsustainable policy, adverse shocks, or both.\n- Prospectively uses Monte Carlo techniques to identify the primary surplus required to prevent the debt/GDP ratio from rising in all but the worst 50 percent, 25 percent, and 10 percent of circumstances.\n- Frames results as a value-at-risk approach that presents a clearer menu of policy options than currently used frameworks."
    },
    {
      "heading": "Methodology",
      "content": "- Model: Vector Autoregression (VAR) including fiscal and macroeconomic variables.\n- Retrospective analysis: Historical decomposition of debt accumulation drivers (policy vs. shocks).\n- Prospective analysis: Monte Carlo simulations to generate distributions of debt/GDP outcomes and compute required primary surplus thresholds for specified risk levels (50 percent, 25 percent, 10 percent)."
    },
    {
      "heading": "Key findings and scenarios",
      "content": "- Historical decomposition quantifies the contribution of unsustainable policy and adverse shocks to past debt accumulation for Brazil, Mexico, and Turkey.\n- Monte Carlo results provide primary surplus targets that would keep debt/GDP from rising except in the worst:\n  - 50 percent of circumstances\n  - 25 percent of circumstances\n  - 10 percent of circumstances\n- The value-at-risk framing offers discrete policy trade-offs tied to explicit probability thresholds."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Use probabilistic (value-at-risk) metrics to inform fiscal policy choices and communicate trade-offs across explicit risk levels (50 percent, 25 percent, 10 percent).\n- Tailor required primary surplus targets to country-specific VAR-based projections and risk tolerances.\n- Employ the combination of historical decomposition and Monte Carlo projections to distinguish between debt dynamics driven by policy versus shocks, aiding the design of corrective fiscal measures.\n\n---\n\n Content in this bundle\n\n- Wp06295\n  - Wp06295 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp06295 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/probabilistic-sustainability-of-public-debt-a-vector-autoregression-approach-for-brazil-20006"
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    "Authors: Evan C Tanner, Issouf Samaké",
    "Published: December 1, 2006",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451865554.001",
    "Examines sustainability of fiscal policy under uncertainty in Brazil, Mexico, and Turkey.",
    "For each country, estimates a vector autoregression (VAR) that includes fiscal and macroeconomic variables.",
    "Retrospectively uses historical decomposition to attribute debt accumulation to unsustainable policy, adverse shocks, or both.",
    "Prospectively uses Monte Carlo techniques to identify the primary surplus required to prevent the debt/GDP ratio from rising in all but the worst 50 percent, 25 percent, and 10 percent of circumstances.",
    "Frames results as a value-at-risk approach that presents a clearer menu of policy options than currently used frameworks.",
    "Model: Vector Autoregression (VAR) including fiscal and macroeconomic variables.",
    "Retrospective analysis: Historical decomposition of debt accumulation drivers (policy vs. shocks).",
    "Prospective analysis: Monte Carlo simulations to generate distributions of debt/GDP outcomes and compute required primary surplus thresholds for specified risk levels (50 percent, 25 percent, 10 percent).",
    "Historical decomposition quantifies the contribution of unsustainable policy and adverse shocks to past debt accumulation for Brazil, Mexico, and Turkey.",
    "Monte Carlo results provide primary surplus targets that would keep debt/GDP from rising except in the worst:",
    "The value-at-risk framing offers discrete policy trade-offs tied to explicit probability thresholds.",
    "Use probabilistic (value-at-risk) metrics to inform fiscal policy choices and communicate trade-offs across explicit risk levels (50 percent, 25 percent, 10 percent).",
    "Tailor required primary surplus targets to country-specific VAR-based projections and risk tolerances.",
    "Employ the combination of historical decomposition and Monte Carlo projections to distinguish between debt dynamics driven by policy versus shocks, aiding the design of corrective fiscal measures.",
    "**Wp06295**"
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