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A toolkit to assess fiscal vulnerabilities and risks in advanced economies

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This article presents a range of tools and indicators for analysing fiscal vulnerabilities and risks for advanced economies. The analysis covers key short-, medium- and long-term dimensions. Short-term pressures are captured by assessing (i) gross funding needs, (ii) market perceptions of default risk and (iii) stress dependence among sovereigns. Medium- and long-term pressures are summarized by (iv) medium- and long-term budgetary adjustment needs, (v) susceptibility of debt projections to growth and interest rate shocks and (vi) stochastic risks to medium-term debt dynamics. Aiming to cover a wide range of advanced economies and minimize data lags, has also influenced the selection of empirical methods. Due to these features, they can, for example, help inform the joint IMF–FSB Early Warning Exercise (EWE) on the fiscal dimensions of economic risks.

Keywords: E62; H10; fiscal indicators; fiscal risk; fiscal vulnerabilities; sustainability

Document Type: Research Article


Affiliations: 1: International Monetary Fund, 700 19th Street NW, Washington, DC, 20431, USA 2: European Central Bank, Frankfurt, Germany

Publication date: 2014-02-21

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