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This paper proposes a set of fiscal indicators to assess rollover risks using the conceptual framework developed by Cottarelli (2011). These indicators provide early warning signals about the manifestation of these risks, giving policymakers the opportunity to adjust policies before extreme fiscal stress events. Two aggregate indices are calculated: an index of fiscal vulnerability and an index of fiscal stress. Results show that both indices are elevated for advanced economies, reflecting unfavorable medium-term debt dynamics and aging-related spending pressures. In emerging economies, solvency risks are lower, but the composition of public debt remains a source of risk and the fiscal position is weaker than before the crisis.
Economic indicators. --- Fiscal policy. --- Risk management. --- Insurance --- Management --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Business indicators --- Economic indicators --- Indicators, Business --- Indicators, Economic --- Leading indicators --- Economic history --- Quality of life --- Economic forecasting --- Index numbers (Economics) --- Social indicators --- Government policy --- Financial Risk Management --- Macroeconomics --- Public Finance --- Debt --- Debt Management --- Sovereign Debt --- Public Administration --- Public Sector Accounting and Audits --- International Financial Markets --- Fiscal Policy --- Public finance & taxation --- Finance --- Fiscal risks --- Public debt --- Debt refinancing --- Asset and liability management --- Fiscal stance --- Fiscal policy --- Debts, Public --- Asset-liability management --- Canada
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Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.
Capital movements --- Default (Finance) --- Risk --- Economics --- Uncertainty --- Probabilities --- Profit --- Risk-return relationships --- Finance --- Finance, Public --- Repudiation --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Econometric models. --- Foreign exchange reserves --- Currency reserves, Foreign --- Foreign currency reserves --- Foreign reserves (Foreign exchange reserves) --- International reserves (Foreign exchange reserves) --- Reserves, Foreign exchange --- Reserves (Accounting) --- E-books --- Banks and Banking --- Exports and Imports --- Financial Risk Management --- Investments: Bonds --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- International Lending and Debt Problems --- Open Economy Macroeconomics --- International Investment --- Long-term Capital Movements --- Personal Income, Wealth, and Their Distributions --- Monetary Policy --- Debt --- Debt Management --- Sovereign Debt --- General Financial Markets: General (includes Measurement and Data) --- International economics --- Banking --- Investment & securities --- Sudden stops --- Personal income --- Reserves accumulation --- Debt refinancing --- Bonds --- Central banks --- National accounts --- Asset and liability management --- Financial institutions --- Income --- Mexico
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