Refinements to the Probabilistic Approach to Fiscal Sustainability Analysis

Refinements to the Probabilistic Approach to Fiscal Sustainability Analysis

This paper relaxes some key assumptions in the probabilistic approach to fiscal sustainability. First, the authors identify structural breaks over the sample period used to estimate the covariance matrix of the shocks to the debt ratios. Second, the assumption of normality of the shocks is dropped by modeling their respective empirical distribution directly, which makes it possible to quantify asymetries and thick tails. Third, the use of fiscal reaction functions is avoided by focusing attention on debt-stabilizing balances.

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Bibliographic Details
Main Authors: Frank, Nathaniel, Ley, Eduardo
Language:English
Published: World Bank, Washington, DC 2008-09
Subjects:AVERAGE DEBT, BANK POLICY, BENCHMARK, BOND, BOND INDEX, BORROWING, BORROWING COSTS, BUSINESS CYCLE, CURRENCY DEPRECIATION, DEBT, DEBT DYNAMICS, DEBT LEVEL, DEBT LEVELS, DEBT RATIOS, DEBT STOCK, DEBT SUSTAINABILITY, DECREASING DEBT, ECONOMIC ANALYSIS, EMERGING MARKET, EMERGING MARKET COUNTRIES, EMERGING MARKET ECONOMIES, EMERGING MARKETS, ENDOGENOUS VARIABLES, EXCHANGE RATE, EXCHANGE RATE MOVEMENTS, EXCHANGE RATES, FINANCIAL CRISES, FINANCIAL DISTRESS, FINANCIAL INSTABILITY, FISCAL POLICY, FISCAL POSITION, FISCAL SUSTAINABILITY, FORECASTS, FOREIGN MARKETS, GDP, GDP DEFLATOR, GOVERNMENT DEBT, GROWTH RATES, INTEREST RATE, INTEREST RATE CHANGES, INTEREST RATE SHOCKS, INTEREST RATE SPREADS, INTEREST RATES, INTERNATIONAL BANK, LOCAL CURRENCY, LONG TERM DEBT, LOW INTEREST RATES, MATURITY, MATURITY STRUCTURE, MATURITY STRUCTURES, OUTPUT, OUTPUT GAP, PROBABILITIES, PROBABILITY, REAL GDP, RISK ASSESSMENT, RISK EXPOSURE, STRUCTURAL CHANGE, SUSTAINABILITY ANALYSIS, T-BILL, T-BILL RATES,
Online Access:http://documents.worldbank.org/curated/en/2008/09/9820457/refinements-probabilistic-approach-fiscal-sustainability-analysis
https://hdl.handle.net/10986/6776
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http://documents.worldbank.org/curated/en/2008/09/9820457/refinements-probabilistic-approach-fiscal-sustainability-analysis
https://hdl.handle.net/10986/6776

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