Assessing debt sustainability in emerging market economies using stochastic simulation methods

By: Contributor(s): Material type: TextTextSeries: Policy Research Working Paper, no. 3821Publication details: Washington, D.C. The World Bank 2006Description: 34 pSubject(s): DDC classification:
  • 332.6
Summary: "2The authors apply stochastic simulation methods to assess debt sustainability in emerging market economies and provide probability measures for projections of the external and public debt burden over the medium term. The vulnerability of public debt to adverse shocks is determined by a number of interrelated factors, including the volatility of output, financial fragility, the endogenous response of the risk premium, and sudden stops in private capital flows. The vulnerability of external debt is sensitive to the determination of the exchange rate and to the pricing of traded goods. The authors show that fiscal policy can act in a preemptive manner to prevent the debt burden from rising significantly over the medium term. This requires flexibility in fiscal planning, which many emerging market economies lack. Emerging market economies therefore face a difficult trade off between managing the risk of a debt crisis and pursuing other important fiscal policy objectives. ""--World Bank web site."
List(s) this item appears in: World Bank Working Paper Series
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Books Vikram Sarabhai Library Rack 18-B / Slot 691 (0 Floor, West Wing) General Stacks 332.6 H6A8 (Browse shelf(Opens below)) Available 162538

Includes bibliographical references

"2The authors apply stochastic simulation methods to assess debt sustainability in emerging market economies and provide probability measures for projections of the external and public debt burden over the medium term. The vulnerability of public debt to adverse shocks is determined by a number of interrelated factors, including the volatility of output, financial fragility, the endogenous response of the risk premium, and sudden stops in private capital flows. The vulnerability of external debt is sensitive to the determination of the exchange rate and to the pricing of traded goods. The authors show that fiscal policy can act in a preemptive manner to prevent the debt burden from rising significantly over the medium term. This requires flexibility in fiscal planning, which many emerging market economies lack. Emerging market economies therefore face a difficult trade off between managing the risk of a debt crisis and pursuing other important fiscal policy objectives. ""--World Bank web site."

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