02223cas a2200253 a 4500 AALejournalIMF007171 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455261369 1018-5941 BD-DhAAL BD-DhAAL Kawakami, Kei. Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts / Kei Kawakami, Rafael Romeu. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (35 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students A stochastic debt forecasting framework is presented where projected debt distributions reflect both the joint realization of the fiscal policy reaction to contemporaneous stochastic macroeconomic projections, and also the second-round effects of fiscal policy on macroeconomic projections. The forecasting framework thus reflects the impact of the primary balance on the forecast of macro aggregates. Previously-developed forecasting algorithms that do not incorporate these second-round effects are shown to have systematic forecast errors. Evidence suggests that the second-round effects have statistically and economically significant impacts on the direction and dispersion of the debt-to-GDP forecasts. For example, a positive structural primary balance shock lowers the domestic real interest rate, in turn raising GDP and lowering the median debt-to-GDP projection by an additional 10 percent of GDP in the medium term relative to prior forecasting algorithms. In addition, the framework employs a new long-term (five decade) data base and accounts for parameter uncertainty, and for potentially non-normally distributed shocks. Mode of access: Internet Romeu, Rafael. IMF Working Papers; Working Paper ; No. 2011/107 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/107/001.2011.issue-107-en.xml IMF e-Library