{
  "title": "Pooling Fiscal Risk in the ECCU: Quantifying Savings of a Regional Fund for Stabilization and Investment",
  "publication": "IMF Working Papers, July 16, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832",
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  "summary": "This paper quantifies the savings obtained from risk pooling with a Regional Stabilization Fund (RSF) for the Eastern Caribbean Currency Union. A Monte Carlo experiment is used to estimate the size of a RSF conditional on probabilities of depletion under specific saving-withdrawal rules.",
  "sections": [
    {
      "heading": "Summary and objective",
      "content": "- Quantifies the savings obtained from risk pooling with a Regional Stabilization Fund (RSF) for the Eastern Caribbean Currency Union.\n- Uses a Monte Carlo experiment to estimate the size of a RSF conditional on probabilities of depletion under specific saving-withdrawal rules.\n- Aims to assess stabilization requirements, effects on public investment and debt dispersion, and implications for the stability of the regional currency board."
    },
    {
      "heading": "Methodology",
      "content": "- Analytical approach: Monte Carlo experiment.\n- Scenarios evaluated: RSF sized to meet conditional probabilities of depletion under specified saving-withdrawal rules.\n- Rules considered: saving-withdrawal rules and a saving-investment rule that allow reallocation of government consumption savings during booms toward public investment during recessions."
    },
    {
      "heading": "Key quantitative findings",
      "content": "- Regional risk pooling requires about half of the saving amount relative to the sum of individual-country savings.\n- Public investment increases in the range of 0.5-1.5 percent of GDP per year depending on the country, with positive growth dividends.\n- The RSF reduces the dispersion of public debt outcomes given cross-country cyclical synchronicity of output and revenue, thereby strengthening the stability of the regional currency board."
    },
    {
      "heading": "Policy implications and welfare effects",
      "content": "- Reduces overall saving requirements for stabilization through risk sharing across member countries.\n- Improves welfare by reallocating government consumption savings accumulated during booms to public investment during recessions.\n- Strengthens fiscal and currency-board stability by lowering cross-country dispersion in public debt trajectories.\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/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832"
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    "[Markdown version](/en/publications/wp/issues/2021/07/16/pooling-fiscal-risk-in-the-eccu-quantifying-savings-of-a-regional-fund-for-stabilization-461832/index.md)",
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    "Authors: Alejandro D Guerson",
    "Published: July 16, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513588827.001",
    "Quantifies the savings obtained from risk pooling with a Regional Stabilization Fund (RSF) for the Eastern Caribbean Currency Union.",
    "Uses a Monte Carlo experiment to estimate the size of a RSF conditional on probabilities of depletion under specific saving-withdrawal rules.",
    "Aims to assess stabilization requirements, effects on public investment and debt dispersion, and implications for the stability of the regional currency board.",
    "Analytical approach: Monte Carlo experiment.",
    "Scenarios evaluated: RSF sized to meet conditional probabilities of depletion under specified saving-withdrawal rules.",
    "Rules considered: saving-withdrawal rules and a saving-investment rule that allow reallocation of government consumption savings during booms toward public investment during recessions.",
    "Regional risk pooling requires about half of the saving amount relative to the sum of individual-country savings.",
    "Public investment increases in the range of 0.5-1.5 percent of GDP per year depending on the country, with positive growth dividends.",
    "The RSF reduces the dispersion of public debt outcomes given cross-country cyclical synchronicity of output and revenue, thereby strengthening the stability of the regional currency board.",
    "Reduces overall saving requirements for stabilization through risk sharing across member countries.",
    "Improves welfare by reallocating government consumption savings accumulated during booms to public investment during recessions.",
    "Strengthens fiscal and currency-board stability by lowering cross-country dispersion in public debt trajectories.",
    "**Working Paper**"
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