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IMF Working Paper: Fiscal Crises

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Presentation from ADEMU Fiscal Risk and Public Sector Balance Sheets Conference at the University of Bonn, July 6-7

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IMF Working Paper: Fiscal Crises

  1. 1. CPB Netherlands Bureau for Economic Policy Analysis IMF Working Paper Fiscal Crises (WP/17/86) Comments by Eugene Verkade ADEMU workshop Bonn , July 6 2017
  2. 2. CPB Netherlands Bureau for Economic Policy Analysis Comments on Working Paper General remarks Remarks on results Policy implications
  3. 3. CPB Netherlands Bureau for Economic Policy Analysis General remarks • Tremendous work ! • Interesting large database: • 188 countries x 46 years  8700 observations • 436 crises x 6 years  2600 crises years (30% fiscal crises years!) • 4 type of crises (Baldacci) • 2/3 credit events, 1/5 official financing • other 15% more severe crises? • 4 country groups (AM,EM,LIDC,SDS) • Functional, however countries shift between group • 45 year period • countries have changed, the world has changed (countries have become more integrated)
  4. 4. CPB Netherlands Bureau for Economic Policy Analysis Results • A. Dynamics around fiscal crises : – Group averages , comprehensible results › largest gdp impact in AM (1&2 year), less in EM (exchange rate), lesser in LIDC › inflation rate in AM? – more to do with type of crisis then country group? – homogenous groups ? , large/small countries – spread over effects, isolated crises? • B. Twin crises – amplification effect – Combining two databases • C. Long term growth impact? – Lower growth rate/growth level after crises? – however : just lower growth because of structural changes?
  5. 5. CPB Netherlands Bureau for Economic Policy Analysis Policy implications : • ‘’Crises are accompanied by disruptive fiscal adjustments’’ – Self sustaining? , avoidable? • ‘’Public debt tends to rise in the first three years’’ – (temporary) denominator effect of decelerating growth • Have countries become better prepared or more vulnerable? • Are gdp bonds or Eurobonds a good idea? • Underlying mechanisms – warning signals – Countries differ (also in the EU) – what can they learn from each other?

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