On the Probabilistic Approach to Fiscal Sustainability: Structural Breaks and Non-normality
This paper modifies several assumptions in the probabilistic approach to fiscal sustainability proposed by Celasun, Debrun, and Ostry (2007). First, we allow for structural breaks in the vector autoregression model for the macroeconomic variables. Second, in the Monte-Carlo simulations, we draw directly from the empirical distribution of the shocks instead of drawing from a normal distribution, thus allowing for asymmetries and thick tails. Third, we circumvent the use of a fiscal reaction function by focusing attention instead on debt-stabilizing balances, to produce more "agnostic" debt projections. The paper illustrates how these methodological modifications have significant impacts on the results for specific country cases.
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| Main Authors: | , |
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| Format: | Journal Article biblioteca |
| Language: | EN |
| Published: |
2009
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| Subjects: | Macroeconomics: Production E230, Fiscal Policy E620, National Debt, Debt Management, Sovereign Debt H630, Macroeconomic Analyses of Economic Development O110, Fiscal and Monetary Policy in Development O230, |
| Online Access: | http://hdl.handle.net/10986/5746 |
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