Assessing Debt Sustainability in Emerging Market Economies : Using Stochastic Simulation Methods

The authors apply stochastic simulation methods to assess debt sustainability in emerging market economies and provide probability measures for projections of the external and public debt burden over the medium term. The vulnerability of public debt to adverse shocks is determined by a number of interrelated factors, including the volatility of output, financial fragility, the endogenous response of the risk premium, and sudden stops in private capital flows. The vulnerability of external debt is sensitive to the determination of the exchange rate and to the pricing of traded goods. The authors show that fiscal policy can act in a preemptive manner to prevent the debt burden from rising significantly over the medium term. This requires flexibility in fiscal planning, which many emerging market economies lack. Emerging market economies therefore face a difficult tradeoff between managing the risk of a debt crisis and pursuing other important fiscal policy objectives.

Bibliographic Details

Main Authors:	Hostland, Doug, Karam, Philippe
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2006-01
Subjects:	ACCOUNTING, ADVANCED COUNTRIES, ADVERSE SHOCKS, AGGREGATE DEMAND, ASSET PRICES, AUTOREGRESSION, BENCHMARK, BONDS, BORROWING, BUSINESS CYCLE, CAPITAL ACCOUNT, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MARKETS, CREDIT RATING, CREDITORS, CURRENCY CRISES, CURRENT ACCOUNT, CURRENT ACCOUNT ADJUSTMENTS, CURRENT ACCOUNT BALANCE, CURRENT ACCOUNT BALANCES, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT REVERSALS, DEBT, DEBT BURDEN, DEBT BURDENS, DEBT CRISIS, DEBT DEFAULT, DEBT DYNAMICS, DEBT INTOLERANCE, DEBT LEVEL, DEBT MANAGEMENT, DEBT MARKETS, DEBT OBLIGATIONS, DEBT RESCHEDULING, DEBT SERVICE, DEBT SERVICE BURDEN, DEBT SERVICE PAYMENTS, DEBT STOCKS, DEBT SUSTAINABILITY, DEBTOR, DEBTOR REPORTING, DEBTOR REPORTING SYSTEM, DEBTORS, DEFAULT RISK, DEFAULTS, DEVALUATION, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DISCOUNTED VALUE, DISTORTIONARY TAXES, DOMESTIC CURRENCY, DOMESTIC DEBT, ECONOMIC GROWTH, ECONOMIC OUTCOMES, ECONOMIC OUTLOOK, ECONOMIC STRUCTURE, EMERGING MARKET ECONOMIES, EMPIRICAL EVIDENCE, EMPIRICAL STUDIES, ENDOGENOUS VARIABLES, EXCHANGE RATE, EXCHANGE RATE DEPRECIATION, EXCHANGE RATES, EXPORTS, EXTERNAL DEBT, EXTERNAL DEBT BURDEN, FINANCIAL CRISES, FINANCIAL FRAGILITY, FISCAL POLICY, FOREIGN CURRENCY, FUTURE RESEARCH, GDP, GROWTH RATE, INCOME, INFLATION, INFLATION TARGETING, INTEREST RATE, INTEREST RATES, INTERNATIONAL FINANCE, LIQUIDITY, LIQUIDITY CRISES, LOCAL CURRENCY, LONG TERM, LOW-INCOME COUNTRIES, MACRO MODELS, MACRO POLICIES, MACROECONOMIC POLICIES, MACROECONOMIC POLICY, MACROECONOMIC VOLATILITY, MATURITY STRUCTURE OF DEBT, MIDDLE INCOME COUNTRIES, MIDDLE-INCOME COUNTRIES, MONETARY POLICY, NOMINAL INTEREST RATE, OPEN ECONOMIES, OPEN ECONOMY, OUTPUT GROWTH, OUTPUT VOLATILITY, POLICY INSTRUMENTS, POLICY RESEARCH, PRIMARY SURPLUS, PRIVATE SECTOR, PUBLIC DEBT, REAL EXCHANGE, REAL GDP, REAL INTEREST, REAL INTEREST RATE, REFINANCE, RESERVE MANAGEMENT, RISK PREMIUM, SERIAL DEFAULTERS, SOLVENCY, SOVEREIGN DEBT, STABLE INFLATION, STANDARD DEVIATION, STATISTICAL ANALYSIS, STRUCTURAL REFORMS, TAX REVENUES, TRADE BALANCE, TRADE SHOCKS,
Online Access:	http://documents.worldbank.org/curated/en/2006/01/6534214/assessing-debt-sustainability-emerging-market-economies-using-stochastic-simulation-methods http://hdl.handle.net/10986/8800
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