Title Intra-year exchange rate fluctuations and public debt dynamic [electronic resource] / by Santiago Acosta Ormaechea.
Imprint [Washington, D.C.] : International Monetary Fund, 2020.©2020
Author Acosta-Ormaechea, Santiago. author.
International Monetary Fund . issuing body.
Date 01-01-2020
Physical description 1 online resource (21 pages).
online resource
Series IMF working paper ; no. 20/261
IMF working paper ; no. 20/261.
Item WEB (Copy 1) INTRANET 1267932-1001 ONLINE
URL Available from internal network: http://err.parl.net/client/en_GB/search/asset/83489/0
Major subject Government debt
Exchange rates
Minor subject Economic models
Overseas item
Notes "November 2020"
Includes bibliographical references.
ISBN 9781513561585
Abstract The public sector, in carrying out its operations, often incurs foreign currency denominated liabilities and, as such, is exposed to exchange rate fluctuations that could affect the value of public debt to GDP ratios over time. This paper shows that converting foreign currency denominated flows and stocks into local currency using the average and the end-of-period exchange rates, respectively, as envisaged in public finance manuals, gives rise to an identifiable stock-flow adjustment term - due to intra-year exchange rate fluctuations - that affects public debt accumulation. Importantly, the inclusion of this often-ignored stock-flow adjustment term is critical to accurately project public debt levels and any related indicator that could in turn inform about the risk of debt distress. Using a novel dataset covering 82 countries during 2008-19, the paper shows that this stock flow adjustment term is sizable in countries experiencing large exchange rate depreciations, namely above the 99th percentile of the full sample, reaching 1.2 percent of GDP. Interestingly, the measurement of policy-related concepts such as interest rate-growth differentials and debt stabilizing primary balances are also affected by intra-year exchange rate fluctuations, and in non-negligible ways.
LCN 1267932
Item ID 1267932-1001
Database Library Catalogue