Probabilistic Sustainability of Public Debt : A Vector Autoregression Approach for Brazil, Mexico, and Turkey

Probabilistic Sustainability of Public Debt : A Vector Autoregression Approach for Brazil, Mexico, and Turkey
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Volume/Issue:
2006/295
Series:
IMF Working Papers
Author(s):
Evan Tanner, and Issouf Samaké
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
December 2006
DOI:
http://dx.doi.org/10.5089/9781451865554.001
ISBN:
9781451865554
ISSN:
1018-5941
Page:
42
This paper examines the sustainability of fiscal policy under uncertainty in three emerging market countries, Brazil, Mexico, and Turkey. For each country, we estimate a vector autoregression (VAR) that includes fiscal and macroeconomic variables. Retrospectively, a historical decomposition shows by how much debt accumulation reflects unsustainable policy, adverse shocks, or both. Prospectively, Monte Carlo techniques reveal the primary surplus that is required to keep the debt/GDP ratio from rising in all but the worst 50 percent, 25 percent, and 10 percent of circumstances. Such a value-at-risk approach presents a clearer menu of policy options than currently used frameworks.
Article

Probabilistic Sustainability of Public Debt

Author(s):
Evan Tanner, and Issouf Samaké
Published Date:
December 2006
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