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Assessing Fiscal Sustainability Under Uncertainity
Author:
Mr. Theodore M. Barnhill null

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Mr. George Kopits
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Series:
IMF Working Papers
Volume/Issue:
Volume 2003: Issue 079
Language:
English
Publication Date:
01 Apr 2003
DOI:
https://doi.org/10.5089/9781451850222.001
ISBN:
9781451850222
ISSN:
1018-5941
Pages:
34
Keywords:
WP; balance sheet; present value; exchange rate; fiscal policy; Value-at-Risk analysis; vulnerability to crises; emerging markets; risk variable; mean reversion; price level; term structure; oil price volatility; present-value terms; interest yield; estimating default risk; assumed oil price development; risk measurement; oil price development; price deviation; Public sector; Fiscal sustainability; Vector autoregression; Fiscal stance; Financial statements
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Unlike conventional fiscal sustainability assessments, the Value-at-Risk approach developed in this paper explicitly captures the contribution of key risk variables to public sector vulnerability. In an illustrative application to Ecuador, the VaR approach confirms a significant risk of government financial failure stemming from the volatility and comovements of the exchange rate, interest rates, oil prices, and output. Although dollarization has helped attenuate fiscal vulnerability, the volatility of sovereign spreads and of oil prices remain major sources of risk for Ecuador's public sector. The paper concludes with a discussion of policy implications, an evaluation of the methodology, and suggestions for future research.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund