Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods

Specification of a Stochastic Simulation Model for Assessing Debt Sustainability in Emerging Market Economies

“…In Hostland and Karam (2005), we find that the pricing of traded goods had a significant influence on the sustainability of external debt. An exchange rate depreciation can result in a rapid improvement in the trade balance in our model mainly when traded goods are priced in foreign currency.…”

“…Our calculations indicate that the public debt burden in 31 emerging market economies increased from an average level of 54% of GDP in 2000 to 59% in 2003, before declining slightly to 56% in 2004. 8 In Hostland and Karam (2005), we explore how the increase in public debt burdens in some emerging market economies has affected their vulnerability to adverse shocks. The model is calibrated such that 38% of public debt is issued externally (denominated in foreign currency), while another 12% is issued domestically (denominated in local currency), but indexed to the exchange rate.…”

“…Our companion paper (Hostland and Karam, 2005) extended this line of research by investigating how various modeling specification issues affect probability measures generated using stochastic simulation methods. Four features were found to have a major influence: (1) monetary and fiscal policy; (2) financial fragility (reliance on short-term, foreign currency borrowing); (3) an endogenous default premium; and (4) "sudden stops" in private capital flows.…”

“…Monetary and fiscal policy are endogenous in the model, implemented using forward-looking policy rules. Our previous research (Hostland and Karam, 2005) has shown how a well-designed fiscal planning strategy can be used to help manage the risks surrounding debt sustainability over the medium term. The current paper illustrates that the response of monetary policy to shocks also has a significant impact on public and external debt burdens.…”

Sustainability of External Debt: Panel Cointegration Analysis of the Fragile Five

“…Hostlan veKaram (2005) 31 gelişmekte olan ülke için yaptıkları borç sürdürülebilirliği analizinde risk primi, çıktı oynaklığı, sermaye hareketlerindeki ani duruş ve finansal kırılganlık (kısa vadeli ya da dövizle borçlanma) gibi birçok birbiriyle bağlantılı faktörün önemli olduğunu ortaya koymuşlardır. Çalışma sonuçları döviz kuru ve ticarete konu olan malların dövizle fiyatlanmasının da borç sürdürülebilirliği üzerinde etkisi olduğunu ortaya koymuştur.…”