{"id":13459,"date":"2019-03-27T09:51:40","date_gmt":"2019-03-27T08:51:40","guid":{"rendered":"https:\/\/www.rrz.sk\/?p=13459"},"modified":"2022-03-09T15:32:50","modified_gmt":"2022-03-09T14:32:50","slug":"fiscal-limits-the-mirror-does-not-lie","status":"publish","type":"post","link":"https:\/\/www.rrz.sk\/en\/fiscal-limits-the-mirror-does-not-lie\/","title":{"rendered":"Fiscal Limits &#8211; The Mirror Does Not Lie"},"content":{"rendered":"<p>A nonlinear relationship between the sovereign risk premium and\u00a0the level of government debt then emerges in equilibrium. The model is calibrated to Slovak\u00a0data assuming steeply growing age-related transfers and volatile business cycle. We study the\u00a0impact of various model parameters on the conditional (state-dependent) and unconditional distributions\u00a0of the fiscal limit. Fiscal limit distributions obtained via Markov\u2013Chain\u2013Monte\u2013Carlo\u00a0regime switching algorithm depend on the rate of growth of government transfers, the degree of\u00a0countercyclicality of policy, and the distribution of the underlying economic conditions. We find that both distributions are considerably more heavy-tailed compared with those usually obtained\u00a0in the literature for advanced economies, and are very sensitive to the size and rate of growth\u00a0of transfers, the business cycle phase and the fiscal policy credibility. The main policy message\u00a0is that the Maastricht debt limit of 60 percent of GDP is not safe enough for Slovakia. Furthermore,\u00a0credible reforms reining in age-related spending and thus stabilising public finance in the\u00a0long-run, should be a priority.<\/p>\n<p>You can find the whole paper <a href=\"https:\/\/www.rrz.sk\/wp-content\/uploads\/2021\/10\/Fiscal-Limits-The-Mirror-Does-Not-Lie.pdf\">here<\/a>.<\/p>\n<p>Keywords: Simulation Methods and Modelling, Fiscal Policy, Government Expenditures, Debt\u00a0Management and Sovereign Debt.<br \/>\nJEL Classification: C15, C63, E62, H5, H63.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>We assume a feedback loop between\u00a0the fiscal limit distribution and the risk premium and determine them simultaneously using and\u00a0efficient iterative scheme.<\/p>\n","protected":false},"author":2,"featured_media":12385,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"h5ap_radio_sources":[],"footnotes":""},"categories":[136],"tags":[80],"class_list":["post-13459","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-budget","tag-presentations"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - 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