{
  "title": "Public Debt Dynamics and Intra-Year Exchange Rate Fluctuations",
  "publication": "IMF Working Papers, November 20, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2020/11/20/public-debt-dynamics-and-intra-year-exchange-rate-fluctuations-49904",
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  "summary": "The public sector, in carrying out its operations, often incurs foreign currency denominated liabilities and, as such, is exposed to exchange rate fluctuations that could affect the value of public debt to GDP ratios over time.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- The paper examines how converting foreign currency denominated flows and stocks into local currency using average and end-of-period exchange rates, respectively, produces an identifiable stock-flow adjustment term due to intra-year exchange rate fluctuations.\n- Inclusion of this stock-flow adjustment term is critical to accurately project public debt levels and related indicators used to assess the risk of debt distress.\n- Using a novel dataset covering 82 countries during 2008–19, the paper finds the stock-flow adjustment term can be sizable in episodes of large exchange rate depreciations."
    },
    {
      "heading": "Key findings",
      "content": "- The stock-flow adjustment term arising from intra-year exchange rate fluctuations affects public debt accumulation and debt-to-GDP ratios.\n- In countries experiencing large exchange rate depreciations (namely above the 99th percentile of the full sample), the stock-flow adjustment term can reach 1.2 percent of GDP.\n- Measurement of policy-related concepts is affected by intra-year exchange rate fluctuations in non-negligible ways, including:\n  - Interest rate-growth differentials.\n  - Debt stabilizing primary balances."
    },
    {
      "heading": "Policy and measurement implications",
      "content": "- Debt projections that omit the intra-year stock-flow adjustment term may misstate public debt levels and misinform assessments of debt distress risk.\n- Accurate measurement of interest rate-growth differentials and debt stabilizing primary balances requires accounting for intra-year exchange rate fluctuations to avoid distortions."
    },
    {
      "heading": "Dataset and scope",
      "content": "- Sample: 82 countries.\n- Period covered: 2008–19.\n- Analysis focuses on episodes of heightened exchange rate volatility and nominal exchange rate depreciation.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/11/20/public-debt-dynamics-and-intra-year-exchange-rate-fluctuations-49904"
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    "Authors: Santiago Acosta Ormaechea",
    "Published: November 20, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513561585.001",
    "The paper examines how converting foreign currency denominated flows and stocks into local currency using average and end-of-period exchange rates, respectively, produces an identifiable stock-flow adjustment term due to intra-year exchange rate fluctuations.",
    "Inclusion of this stock-flow adjustment term is critical to accurately project public debt levels and related indicators used to assess the risk of debt distress.",
    "Using a novel dataset covering 82 countries during 2008–19, the paper finds the stock-flow adjustment term can be sizable in episodes of large exchange rate depreciations.",
    "The stock-flow adjustment term arising from intra-year exchange rate fluctuations affects public debt accumulation and debt-to-GDP ratios.",
    "In countries experiencing large exchange rate depreciations (namely above the 99th percentile of the full sample), the stock-flow adjustment term can reach 1.2 percent of GDP.",
    "Measurement of policy-related concepts is affected by intra-year exchange rate fluctuations in non-negligible ways, including:",
    "Debt projections that omit the intra-year stock-flow adjustment term may misstate public debt levels and misinform assessments of debt distress risk.",
    "Accurate measurement of interest rate-growth differentials and debt stabilizing primary balances requires accounting for intra-year exchange rate fluctuations to avoid distortions.",
    "Sample: 82 countries.",
    "Period covered: 2008–19.",
    "Analysis focuses on episodes of heightened exchange rate volatility and nominal exchange rate depreciation.",
    "**Working Paper**"
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