Fiscal Sustainability Risk Assessment with Macroeconomic Factors

Abstract

Fiscal sustainability conditions for the Maastricht gross nominal consolidated public debt are analyzed using Hungarian data. The components of debt dynamics are grouped following the commonly used debts sustainability approach while the factors and their contributions to the changes of the debt are analyzed using a VAR model. The stochastic properties (variance) of macro variables used in the VAR model help to asses risks to fiscal sustainability. This approach offers a way to determine the effect of possible macroeconomic shocks on debt dynamics. Using stochastic simulation, we can estimate a confidence interval around the expected debt ratio path at pre-specified probability levels.