Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162202
Authors: 
Bouabdallah, Othman
Checherita-Westphal, Cristina
Warmedinger, Thomas
De Stefani, Roberta
Drudi, Francesco
Setzer, Ralph
Westphal, Andreas
Year of Publication: 
2017
Series/Report no.: 
ECB Occasional Paper 185
Abstract: 
The euro area sovereign debt crisis has highlighted the importance of reducing public debt levels and building up sufficient fiscal buffers during normal and good times. It has also reaffirmed the need for a thorough debt sustainability analysis (DSA) to act as a warning system for national policies. This paper introduces a comprehensive DSA framework for euro area sovereigns that could be used for analysis of fiscal risks and vulnerabilities. Specifically, this framework consists of three main building blocks: (i) a deterministic DSA, which embeds debt simulations under a benchmark and various narrative shock scenarios; (ii) a stochastic DSA, providing for a probabilistic approach to debt sustainability; and (iii) other relevant indicators capturing liquidity and solvency risks. The information embedded in the three main DSA blocks can be summarised in a heat map, which can provide guidance on the overall assessment of risks to debt sustainability. This method reflects the need to have a broad-based assessment, cross-checking information and perspectives from various sources with a view to deriving a robust debt sustainability assessment.
Subjects: 
sovereign debt sustainability analysis
fiscal policy
public debt
euro area
fiscal risks
JEL: 
E62
H62
H63
H68
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2847-2
Document Type: 
Research Report

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