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A Simple Stochastic Approach to Debt Sustainability Applied to Lebanon

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Author Info

  • E. H. Gardner
  • Julian di Giovanni

Abstract

This paper applies a simple probabilistic approach to debt sustainability analysis to the case of Lebanon. The paper derives "fan charts" to depict the probability distribution of the government debt to GDP ratio under a medium-term adjustment scenario, as a result of shocks to GDP growth and interest rates. The distribution of shocks is derived from the past shocks to these variables and the related variance covariance. Because we are interested in assessing the sustainability of a particular policy scenario, we do not consider independent fiscal policy shocks or the endogenous policy response to shocks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/97.

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Length: 23
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/97

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Keywords: Gross domestic product; External shocks; Financial risk; debt sustainability; debt ratio; covariance; probability; standard deviation; debt dynamics; government debt; standard deviations; equation; correlation; confidence intervals; statistics; debt sustainability analysis; monte carlo simulation; public debt; correlations; probability distribution; central bank; debt accumulation; equations; debt crisis; sovereign debt; stochastic process; skewness; debt crises; simulation results; debt burden; projection period; maturity structure of debt; domestic currency; sovereign debt crises; debtor countries; time series; autocorrelation; normal distribution; random walks; traditional debt sustainability analysis; confidence interval; debt intolerance; currency debt; balance of payments; financial statistics; debt overhang;

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References

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  1. Manasse, Paolo & Roubini, Nouriel, 2009. ""Rules of thumb" for sovereign debt crises," Journal of International Economics, Elsevier, Elsevier, vol. 78(2), pages 192-205, July.
  2. Nigel Andrew Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
  3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  4. Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries," IMF Working Papers 06/67, International Monetary Fund.
  5. Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.
  6. Philippe D Karam & Doug Hostland, 2005. "Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods," IMF Working Papers 05/226, International Monetary Fund.
  7. Tushar Poddar & Mangal Goswami & Juan Sole & Victor Echévarria Icaza, 2006. "Interest Rate Determination in Lebanon," IMF Working Papers 06/94, International Monetary Fund.
  8. Mendoza, Enrique G. & Oviedo, P. Marcelo, 2006. "Public Debt, Fiscal Solvency, and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico," Staff General Research Papers, Iowa State University, Department of Economics 12700, Iowa State University, Department of Economics.
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Citations

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Cited by:
  1. David Cronin & Kevin Dowd, 2013. "Fiscal Fan Charts: A Tool for Assessing Member States' (Likely?) Compliance with EU Fiscal Rules," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 34, pages 517-534, December.
  2. Jafri, Sabina Khurram, 2009. "External Debt Sustainability Analysis for the Medium Term: A Case Study," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 62(3), pages 363-382.

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