Sustainable Fiscal Policy with Rising Public Debt-To-Gdp Ratios
In financial and economic policy circles concerned with public debt in developing countries, a rising debt-GDP ratio is interpreted as a signal of overborrowing, warning of debt defaults if strong fiscal corrections are not adopted in time. This paper shows why this interpretation is incorrect by building a simple model of fiscal policy in which upward-sloping debt paths are observed even though the probability of default is ``almost surely" equal to zero.
|Date of creation:||27 Nov 2006|
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- Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006.
"Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries; A "Fan-Chart" Approach,"
IMF Working Papers
06/67, International Monetary Fund.
- Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 3.
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-96, March.
- Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Research, Inc.
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