Quantile Debt Fan Charts

Suzette Dagli (), Paul Mariano () and Arjan Paulo Salvanera ()
Additional contact information
Suzette Dagli: Asian Development Bank
Paul Mariano: Asian Development Bank
Arjan Paulo Salvanera: Asian Development Bank

No 664, ADB Economics Working Paper Series from Asian Development Bank

Abstract: The paper applies quantile regression technique, specifically, quantile vector autoregression to stochastic debt sustainability analysis (DSA) and the construction of public debt fan charts. Stochastic approach to DSA typically uses standard ordinary least squares vector autoregression (OLS VAR) and “fan charts” to depict the upside and downside risks surrounding public debt projections due to uncertain macroeconomic conditions. These VAR models rely on constant coefficients and random variables that are independent and identically distributed. However, empirical evidence suggests that macroeconomic variables are characterized by nonlinearities and asymmetries that linear regression models, such as OLS VAR, may not capture. Many attempt to show how such nonlinearities can be accounted for by using quantile regression methods. Quantile regression allows for varying parameters for each quantile and facilitates the analysis of asymmetric dynamics. It is also a natural environment for stress testing exercises by estimating the reaction of the endogenous variable to tail shocks or future quantile realizations.

Keywords: debt; quantile regression; fan charts (search for similar items in EconPapers)
JEL-codes: C31 H63 H68 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2022-06-08
New Economics Papers: this item is included in nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.adb.org/publications/quantile-debt-fan-charts Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0664

Access Statistics for this paper

More papers in ADB Economics Working Paper Series from Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines. Contact information at EDIRC.
Bibliographic data for series maintained by Orlee Velarde ().