Burnside, Craig

Fiscal Sustainability in Theory and Practice : A Handbook

Preface xiii Acknowledgments xv Contributors xvii Acronyms xix An Introduction to Fiscal Sustainability in Theory and Practice 1(10) Craig Burnside Themes 1(1) Omissions 2(1) Basic Theory and Tools 3(2) Business Cycles and Fiscal Rules 5(1) Crises and Fiscal Sustainability 6(2) Application of These Tools 8(3) Notes 8(1) References 9(2) Theoretical Prerequisites for Fiscal Sustainability Analysis 11(24) Craig Burnside The Government Budget Constraint 12(3) Fiscal and Monetary Policy and the Effects of Government Deficits 15(9) Price Level Determination 16(4) Coordination of Fiscal and Monetary Policy 20(4) The Fiscal Theory of the Price Level 24(4) Interpreting the Lifetime Budget Constraint 24(3) Relevance of the Fiscal Theory 27(1) The Fiscal Theory and Policy Messages 28(1) Uncertainty 28(2) Conclusion 30(5) Notes 30(2) References 32(3) Some Tools for Fiscal Sustainability Analysis 35(46) Craig Burnside The Long-Run Fiscal Sustainability Condition 36(5) An Example 38(3) Achieving a Target Debt Level 41(2) A Modified Example 41(2) Formal Statistical Tests 43(4) Debt Dynamics 47(15) Theoretical Background 47(7) Debt Dynamics in Practice 54(1) Some Examples of Debt Dynamics 55(7) Using Debt Dynamics in Forward-Looking Analysis 62(5) Time-Varying Interest Rates 63(1) Exchange Rate Risk 64(3) Measuring Debt 67(7) Relevance of Debt and Interest Measures 73(1) Conclusion 74(7) Notes 75(2) References 77(4) Debt and Debt Indicators in the Measurement of Vulnerability 81(32) Punam Chuhan Definition and Measurement of Debt 81(7) Debt in a Closed Economy 82(1) Debt in an Open Economy 83(2) Definition of Debt 85(1) Measurement of Debt 86(2) Debt Analysis and Standard Indicators of Indebtedness 88(10) Debt Payment Problems: Liquidity and Solvency 88(10) Assessing Debt Sustainability 98(5) Definition of Debt Sustainability 99(1) The Core Elements of Traditional Debt Sustainability Analysis 100(3) Conclusion 103(1) Annex 104(9) Notes 107(2) References 109(4) Cyclical Adjustment of the Budget Surplus: Concepts and Measurement Issues 113(20) Craig Burnside Yuliya Meshcheryakova Identifying Trends and Cycles in Aggregate Economic Activity 114(5) Potential Output 115(1) Linear Trends 116(1) Trends and Cycles as Defined by the Hodrick-Prescott Filter 116(1) Cycles and Trends as Defined by an Approximate Band-Pass Filter 117(1) Beveridge-Nelson Decomposition 118(1) Peak-to-Peak Trend Lines 119(1) Methods for Computing the Cyclically Adjusted Budget Surplus 119(5) The EU Definition of the Cyclical Component of the Budget 121(1) The BEA Method of Cyclical Adjustment 122(1) The IMF and OECD Methods of Cyclical Adjustment 123(1) Usefulness of the Adjusted Surplus Concept 124(4) Conclusion 128(5) Notes 128(1) References 129(4) Mexico: A Case Study of Procyclical Fiscal Policy 133(42) Craig Burnside Yuliya Meshcheryakova Perspectives on Mexico's Fiscal Accounts, 1980-2003 135(17) The Business Cycle in Mexico 135(7) Trends and Cycles in Mexico's Fiscal Accounts 142(10) Constructing the Cyclically Adjusted Budget Surplus in Mexico 152(8) Characterizing Fiscal Policy 160(3) The Impact of Fiscal Policy on Real Activity 163(8) A Small VAR Model of the Mexican Economy 164(2) The Effect of Fiscal Policy on Real Activity 166(5) Conclusion 171(4) Notes 172(1) References 172(2) Data Sources 174(1) Chile's Fiscal Rule 175(30) Norbert Fiess Fiscal Rules and the Concept of the Structural Balance 177(4) Fiscal Rules 177(2) The Structural Balance 179(2) The Chilean Experience 181(10) Chile's Fiscal Rule 181(4) Some Observations on Chile's Fiscal Rule 185(4) Countercyclicality of the Structural Rule 189(2) Self-Insurance and Self-Protection at the Country Level 191(4) Sustainable Debt Management and Reduction of Contagion Risk 192(1) Public and Social Expenditure Smoothing 192(3) Conclusion 195(2) Annex 197(8) Notes 200(1) References 201(4) Currency Crises and Fiscal Sustainability 205(28) Craig Burnside Martin Eichenbaum Sergio Rebelo The Government's Intertemporal Budget Constraint 207(2) Fiscal Sustainability and Speculative Attacks 209(6) Money Demand 210(1) The Rule for Abandoning the Fixed Exchange Rate 211(1) Post-crisis Monetary Policy 212(1) Determining the Timing of the Crisis 213(2) Ongoing Deficits 215(5) A Numerical Example 218(2) Prospective Deficits 220(4) Conclusion 224(1) Technical Annex 225(8) The Timing of the Crisis 225(1) Ongoing Deficits 226(3) Prospective Deficits 229(1) Notes 230(1) References 231(2) Financing the Costs of Currency Crises 233(38) Craig Burnside Martin Eichenbaum Sergio Rebelo Prices and Currency Crises 235(4) The Government Budget Constraint 239(5) A Benchmark Model 244(2) A Crisis in the Benchmark Model 245(1) A Numerical Example 245(1) Model Extensions 246(5) Government Debt in Units of Local Currency 247(1) Implicit Fiscal Reform 248(1) Deviations from Purchasing Power Parity: Nontradable Goods with Sticky Prices 249(1) Deviations from Purchasing Power Parity: Distribution Costs 250(1) Tax Revenues and Currency Crises 251(1) Case Studies of Mexico, Korea, and Turkey 252(6) Mexico 1994 253(2) Korea 1997 255(2) Turkey 2001 257(1) Governmental Benefits of Crises 258(5) Conclusion 263(1) Annex: Solving the Model 264(7) The Baseline Model 264(1) The Extended Model with Nominal Debt 264(1) The Extended Model with Nominal Transfers 265(1) The Extended Model with Sticky Nontradables Prices 265(3) Notes 268(1) References 269(2) Index 271