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Assessing Fiscal Stress

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Author Info

  • Gabriela Dobrescu
  • Iva Petrova
  • Nazim Belhocine
  • Emanuele Baldacci

Abstract

This paper develops a new index which provides early warning signals of fiscal sustainability problems for advanced and emerging economies. Unlike previous studies, the index assesses the determinants of fiscal stress periods, covering public debt default as well as near-default events. The fiscal stress index depends on a parsimonious set of fiscal indicators, aggregated using the approach proposed by Kaminsky, Lizondo and Reinhart (1998). The index is used to assess the build up of fiscal stress over time since the mid-1990s in advanced and emering economies. Fiscal stress has increased recently to record-high levels in advanced countries, reflecting raising solvency risks and financing needs. In emerging economies, risks are lower than in mature economies owing to sounder fiscal fundamentals, but fiscal stress remains higher than before the crisis.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/100.

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Length: 43
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/100

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Related research

Keywords: Developed countries; Developing countries; Economic models; Fiscal sustainability; Sovereign debt; fiscal stress; public debt; fiscal indicators; fiscal crisis; fiscal variables; debt default; government debt; fiscal distress; fiscal crises; debt crises; short-term debt; fiscal vulnerability; external debt; sovereign bond; sovereign default; public debt crises; currency crises; debt defaults; fiscal solvency; fiscal adjustment; current account; fiscal policy; currency debt; sovereign debt crises; fiscal affairs; debt obligations; external borrowing; debt restructuring; fiscal affairs department; fiscal risks; short term debt; foreign currency debt; repayment capacity; fiscal outlook; official creditors; domestic currency; fiscal policies; reserve bank; debt exchanges; debt maturity; fiscal difficulties; fiscal data; debt management; domestic public debt; national debt; domestic investor; net debt; currency crisis; debt structure; currency risk; fiscal pressure; deficit financing; fiscal component; fiscal factors; fiscal risk; debt default episodes; currency composition;

This paper has been announced in the following NEP Reports:

References

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  1. Reinhart, Carmen & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  2. Hali J. Edison, 2000. "Do indicators of financial crises work? an evaluation of an early warning system," International Finance Discussion Papers 675, Board of Governors of the Federal Reserve System (U.S.).
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  4. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
  5. Andrea Pescatori & Amadou N R Sy, 2007. "Are Debt Crises Adequately Defined?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 306-337, June.
  6. Bertrand Candelon & Elena-Ivona Dumitrescu & Christophe Hurlin, 2012. "How to evaluate an Early Warning System ?," Working Papers halshs-00450050, HAL.
  7. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  8. Cihák, Martin & Schaeck, Klaus, 2010. "How well do aggregate prudential ratios identify banking system problems?," Journal of Financial Stability, Elsevier, vol. 6(3), pages 130-144, September.
  9. Paolo Mauro & Nathan Sussman & Yishay Yafeh, 2002. "Emerging Market Spreads: Then Versus Now," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 695-733, May.
  10. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity," IMF Working Papers 01/2, International Monetary Fund.
  11. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
  12. Murray Petrie & Richard Hemming, 2000. "A Framework for Assessing Fiscal Vulnerability," IMF Working Papers 00/52, International Monetary Fund.
  13. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
  14. Jeffrey A. Frankel & George Saravelos, 2010. "Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis," NBER Working Papers 16047, National Bureau of Economic Research, Inc.
  15. Marcos Chamon & Paolo Manasse & Alessandro Prati, 2007. "Can We Predict the Next Capital Account Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 270-305, June.
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Citations

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Cited by:
  1. Laura Jaramillo & Anke Weber, 2013. "Global Spillovers into Domestic Bond Markets in Emerging Market Economies," IMF Working Papers 13/264, International Monetary Fund.
  2. Das, Udaibir S. & Oliva, Maria A. & Tsuda, Takahiro, 2012. "Sovereign Risk: A Macro-Financial Perspective," ADBI Working Papers 383, Asian Development Bank Institute.
  3. Tagkalakis, Athanasios, 2013. "The effects of financial crisis on fiscal positions," European Journal of Political Economy, Elsevier, vol. 29(C), pages 197-213.
  4. International Monetary Fund, 2012. "Appraising Credit Ratings," IMF Working Papers 12/122, International Monetary Fund.
  5. Andreas Sachs, 2013. "Governance Structures in Europe," WWWforEurope Deliverables series 2, WWWforEurope.
  6. Anna Kochanova & Carlos Caceres, 2012. "Country Stress Events," IMF Working Papers 12/116, International Monetary Fund.
  7. Nazim Belhocine & Salvatore Dell'Erba, 2013. "The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads," IMF Working Papers 13/93, International Monetary Fund.
  8. Bas van Aarle, 2013. "Surveillance and Control of Fiscal Consolidation on a Supranational Level," WWWforEurope Working Papers series 46, WWWforEurope.
  9. Udaibir S. Das & Maria A. Oliva & Takahiro Tsuda, 2012. "Sovereign Risk: A Macro-Financial Perspective," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(3), pages 367-392, August.
  10. Fabio Comelli, 2012. "Emerging Market Sovereign Bond Spreads," IMF Working Papers 12/212, International Monetary Fund.
  11. Era Dabla-Norris & Yasemin Bal-Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries," IMF Working Papers 12/264, International Monetary Fund.
  12. Elif Arbatli & C. Emre Alper & Jiri Jonas & Anke Weber & Marc Gerard & Tidiane Kinda & Giovanni Callegari & Anna Shabunina & Andrea Schaechter & Carlos Caceres, 2012. "A toolkit for Assessing Fiscal Vulnerabilities and Risks in Advanced Economies," IMF Working Papers 12/11, International Monetary Fund.
  13. Camelia Minoiu & Chanhyun Kang & V.S. Subrahmanian & Anamaria Berea, 2013. "Does Financial Connectedness Predict Crises?," IMF Working Papers 13/267, International Monetary Fund.

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