Macroeconomic Components of the Risks to Fiscal Sustainability in Hungary

Istvan Abel and Ádám Kóbor
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Ádám Kóbor: Investment Office, New York University, 55 Fifth Avenue, New York, NY 10003, USA

Risks, 2022, vol. 10, issue 11, 1-13

Abstract: Introducing uncertainty under fiscal sustainability conditions for the public debt provides a framework for analyzing debt dynamics. Such methods are commonly used for fiscal projections, but our aim here is retrospective; we evaluate the sudden jump in the Hungarian public debt following the global financial crisis in 2008. Based on a traditional debt-deficit stock-flow identity combining the fiscal component (primary deficit) and the interactions among real sector components, we model the debt dynamics by a vector error correction model (VECM). Uncertainty is represented in the model by shocks that are identified in the VECM framework. Using this method for simulation starting from 2006, we found that the debt-to-GDP ratio in 2008 and after could not be ruled out by 90 percent probability. Such an event was coded in the Hungarian debt dynamics and very likely would have materialized even without the unfortunate events of the global financial crisis.

Keywords: Hungary; likelihood of public debt crisis; public debt sustainability; probabilistic approach to public debt; stochastic properties in a VECM framework simulation (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
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