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Debt Analysis and Debt Sustainability
Three lectures course at CES: 20th , 22nd and 27th November 2012
by Gianluca Cafiso
University of Catania, Department of Economics and Business
E-Mail: [email protected]
Website: https://sites.google.com/site/giancafiso/
Course Outline:
This course introduces to the main concepts and analytical tools used in Debt Analysis and Debt
Sustainability Analysis as performed at international organizations such as the IMF and the EC.
All the analytical tools discussed have a straight empirical application which yields many of the
fiscal indicators under current policy use.
An application of such analytical tools is presented and discussed for the Euro Area Countries
(Cafiso 2012) in order to show how to draw policy implications from the empirical analysis.
No specific technical knowledge is required for the understanding of the concepts presented, but
awareness of current economic developments would ease the understanding of the empirical part.
Attendants can expect to gain a sound understanding of the drivers of the debt-to-GDP ratio and
how to assess fiscal sustainability.
1
Lecture 1 – Public Debt Analysis
Topics:
A - Government Deficit and Deficit Financing
B - The structure of Public Debt
C - Decomposition of the Public-Debt-to-DGP variations
The Public Debt law of motion
The Drivers of Public Debt variation
Stock-Flow adjustment term
D - Amortization and the variation of the interest rate
E - Public Debt Sustainability: the Inter-temporal budget balance
List::
Reading List
•
Cafiso G. (2012). “A Guide to Public Debt Equations”, 3rd version November 2012.
•
Cafiso G. (2012). “Debt Developments and Fiscal Adjustment in the EU”, Intereconomics, Volume
47(1), pp. 61-72.
•
Escolano J. (2010). “A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical
Adjustment of Budgetary Aggregates”, International Monetary Fund, IMF Technical Notes and
Manuals No 10/02.
•
Eurostat (2012). “Structure of Government Debt in Europe in 2011”, Eurostat.
•
Afonso (2005). “Fiscal sustainability: The unpleasant European case”, FinanzArchiv, 61(1): 19–44.
•
Bohn H. (2007). “Are stationarity and cointegration restrictions really necessary for the
intertemporal budget constraint?”, Journal of Monetary Economics, 54: 1837-1847.
2
Lecture 2 – Public Debt Corrections
Topics:
A- Solution of the Public Debt difference equation
B- Public Debt Corrections
Debt Stabilization: Primary Balance for a constant DGR
Primary Balance for target Debt/GDP ratios
C- Public Debt Corrections in Practice: Analytical Guidelines for the Assessment
Short-Term effect
Longer-Term effect
D- Public Debt Corrections in Practice: Empirical Investigations of the Effect of Fiscal
Adjustments on the DGR
Issues in selecting and quantifying Fiscal Adjustments
An example of estimation of the Effect of FAs on the DGR
Reading List:
List:
•
Cafiso G. (2012). “Debt Developments and Fiscal Adjustment in the EU”, Intereconomics, Volume
47(1), pp. 61-72.
•
Cafiso G. and R. Cellini (2012). “Fiscal Adjustments and the Evolution of Public Debt in Europe”,
SSRN eLibrary. (Last Version available at https://sites.google.com/site/giancafiso/researchworks/papers)
•
Cottarelli C., L. Forni, J. Gottschalk and P. Mauro (2010). “Default in Today’s Advanced
Economies: Unnecessary, Undesirable, and Unlikely”, International Monetary Fund, IMF Staff
Position Note No. SPN/10/12.
•
Alesina A. and S. Ardagna (2010). “Large Changes in Fiscal Policy: Taxes versus Spending”, Tax
Policy and the Economy, Vol. 24. Cambridge MA: NBER.
•
Guajardo J, D. Leigh and A. Pescatori (2011), “Expansionary Austerity: New International
Evidence”, International Monetary Fund, IMF Working Paper Series, WP/11/158.
•
Nickel C., P. Rother and L. Zimmermann (2010). “Major Public Debt Reductions: Lessons from the
Past, Lessons for the Future”, European Central Bank, Working Paper Series, No 1241.
3
Lecture 3 – Debt in an Open Economy
Topics:
A. The Overall Structure of Debt
B. The Case of Foreign Currency Debt
C. External Debt
C.1. the ED law of motion
C.2. Stabilization
C.3. Sustainability (Intertemporal Budget Balance)
C.4. External Debt or the Net Position?
D. The relationship between Public and External Debt: the Private Sector’s role
E. Sustainability and the Relationship between ED and PD
E.1. Considering FLOW variables
E.2. Considering STOCK variables
E.2.A. Theoretical Introduction
E.2.B. An Empirical Investigation
Reading List:
List:
•
Chalk N. and R. Hemming (2000). “Assessing Fiscal Sustainability in Theory and
Practice”, Internatioal Monetary Fund, IMF Working Paper No. 00/81.
•
Ley E. (2010). “Fiscal (and External) Sustainability”, World Bank.
•
Barrios S., S. Deroose, S. Langedijk and L. Pench (2010), “External Imbalances and
Public Finances in the EU”, European Economy, Occasional Paper Series 66
•
Abbas S., J. Bouhga-Hagbe, A. Fatas, P. Mauro and R. Veloso (2011), “Fiscal
Policy and the Current Account”, IMF Economic Review, Vol.59(4): 603-629.
•
Lane P. and G. Milesi-Ferretti (2002), “Long-Term Capital Movements”, NBER
Macroeconomic Annuals 2001 (Vol 16), edited by B. Bernanke and K. Rogoff
4
Further Readings
Burrnside C. (2005). “Fiscal Sustainability in Theory and Practice”, World Bank.
Cwik T. and V. Wieland (2011). “Keynesian government spending multipliers and spillovers in the euro
area”, Economic Policy, 26(67): 493-549.
Fedelino A., A. Ivanova and M. Horton (2009). “Computing cyclically adjusted balances and automatic
stabilizers”, International Monetary Fund, IMF Technical Notes and Manuals No 09/05.
Gros D. and C. Alcidi (2011). “Adjustment difficulties and debt overhangs in the Eurozone periphery”,
Center for Economic Policy Studies, CEPS Working Paper No. 347
Horne J. (1991). “Indicators of Fiscal Sustainability”, International Monetary Fund, IMF Working Paper No
91/5.
Ouanes A. and S. M. Thakur (1997). “Macroeconomic Accounting and Analysis in Transition Economies”,
International Monetary Fund. (section 6 – the Flow of Funds: Macroeconomic Interrelations)
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