Assessing Fiscal Sustainability Under Uncertainity

April 1, 2003

Preview Citation

Format: Chicago

Theodore M. Barnhill, and George Kopits. Assessing Fiscal Sustainability Under Uncertainity, (USA: International Monetary Fund, 2003) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Econometric analysis, Economic sectors, Financial statements, Fiscal policy, Fiscal risks, Fiscal stance, Fiscal sustainability, Public financial management (PFM), Public sector, Vector autoregression

Keywords: Assumed oil price development, Balance sheet, Emerging markets, Estimating default risk, Exchange rate, Financial statements, Fiscal policy, Fiscal stance, Fiscal sustainability, Interest yield, Mean reversion, Oil price development, Oil price volatility, Present value, Present-value terms, Price deviation, Price level, Public sector, Risk measurement, Risk variable, Term structure, Value-at-Risk analysis, Vector autoregression, Vulnerability to crises, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/079
Stock No:

WPIEA0792003
ISBN:

9781451850222
ISSN:

1018-5941

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