Cover IMF Working Papers
Public Debt Targeting An Application to the Caribbean
Author: Mr. Alejandro D Guerson and Mr. Giovanni Melina
Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 203
Language:
English
Publication Date:
01 Aug 2011
DOI:
https://doi.org/10.5089/9781463902148.001
ISBN:
9781463902148
ISSN:
1018-5941
Pages:
38
Keywords:
WP; primary expenditure; country authorities; expenditure simulation; aggregate demand; political economy; real GDP; Procyclical spending; public debt sustainability; fiscal rules; expenditure consolidation; expenditure impulse; potential GDP; expenditure envelope; expenditure vis-à-vis GDP; vis-à-vis GDP; pro-cyclical bias; interest expenditure; expenditure growth; expenditure stance; Fiscal stance; Budget planning and preparation; Caribbean
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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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This paper proposes a fiscal policy framework we call Public Debt Targeting. The framework seeks to smooth primary spending over the business cycle while remaining consistent with public debt sustainability. Under the proposed framework, a government announces a commitment to a public debt band trajectory over the medium term, while sequentially announcing primary expenditures for the next budget cycle, which are determined recursively based on the history of shocks. Public debt targeting differs from a structural balance rule in that it internalizes the effect of the deterioration in creditworthiness from fiscal deficits and public debt accumulation, which tend to affect sovereign spreads, interest rates, exchange rates, and economic activity. The proposed framework is applied to Caribbean economies, which in general show high levels of public debt and procyclical primary expenditure.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund