Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A 'Fan-Chart' Approach

By Oya Celasun, X. Debrun, Jonathan D. Ostry. Social Science Research Network, 2006

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This paper proposes a probabilistic approach to public debt sustainability analy-sis (DSA) using "fan charts." These depict the magnitude of risks-upside and downside-surrounding public debt projections as a result of uncertain economic conditions and policies. We propose a simulation algorithm for the path of public debt under realistic shock configurations, combining pure economic disturbances (to growth, interest rates, and exchange rates), the endogenous policy response to these, and the possible shocks arising from fiscal policy itself. The paper empha-sizes the role of fiscal behavior, as well as the structure of disturbances facing the economy and due to fiscal policy, in shaping the risk profile of public debt. Fan charts for debt are derived from the "marriage" between the pattern of shocks on the one hand and the endogenous response of fiscal policy on the other. Applications to Argentina, Brazil, Mexico, South Africa, and Turkey are used to illustrate the approach and its limitations. Copyright 2006, International Monetary Fund

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d31e37f2e506d5b33b99ce8c2138b4d71b444145

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Citations in the corpus

The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence (2007, background): “See Celasun, Debrun, and Ostry (2006) for a detailed discussion of the statistical biases related to the estimation of fiscal reaction functions, and Celasun and Kang (2006) for a technical discussion of alternative estimators.”
Public Investment, Growth, and Debt Sustainability: Putting Together the Pieces (2012, background): “9 Rather, the absorptive capacity of the country, the efficiency of public investment spending, the response of the private sector, (7)For this evidence see Celasun et al. (2007), among others. In the current review of the DSF, Fund and World Bank staff are proposing the inclusion, on an optional ba”