comments on mendoza-oviedo how useful is debt sustainability as a concept? in defense of...
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Comments on Mendoza-Oviedo
• How useful is debt sustainability as a concept?
• In defense of In defense of probabilisticprobabilistic approaches: approaches: sensitivity analysissensitivity analysis as as a a non-parametric alternativenon-parametric alternative
• A few comments on A few comments on originaloriginal sins, super-sins, numerators and sins, super-sins, numerators and denominatorsdenominators
How useful is debt sustainability as a concept?
1.1. IIs there anything such as an intrinsically sustainable debt per se?
No: some debts just No: some debts just seemseem to be more sustainable than others, to be more sustainable than others, according to certain ad-hoc criteria and rules of thumb.according to certain ad-hoc criteria and rules of thumb.
22.. A A notional conceptnotional concept with lack of empirical validationwith lack of empirical validation??
Sustainability -Sustainability -likelike solvency- solvency- is a is a notionalnotional, , time-framelesstime-frameless concept concept (Buiter [1985]; Blanchard [1990]). Empirical tests are not possible: (Buiter [1985]; Blanchard [1990]). Empirical tests are not possible: realizations of financial crisis realizations of financial crisis always always burst as violations of burst as violations of liquidityliquidity constraints.constraints.
SustanabilitySustanability can be better regarded as the can be better regarded as the VaRVaR of a liquidity of a liquidity constraint over an constraint over an span span. . The sThe so called vo called vulnerabilityulnerability is a particular is a particular application over a short horizon. Further exploration of this concept application over a short horizon. Further exploration of this concept (Barnhill-Kopitz [2003]) seems closer to (Barnhill-Kopitz [2003]) seems closer to current current market views.market views.
Willingness to payWillingness to pay is difficult to model is difficult to model
SeniorSenior and and subordinatedsubordinated debts might not be equally sustainable debts might not be equally sustainable
In defense of probabilistic approaches: the use of sensitivity analysis
In defense of probabilistic approaches: the use of sensitivity analysis
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The original sin: crime and punishment
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Sustainability vs. liquidity: debt as a stock problem?
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Comments on numerators and denominators
YdY
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gtYD minmin
• If the maturity structure and rollover risk are If the maturity structure and rollover risk are not considered, why taking not considered, why taking minmin instead of instead of structural? Min structural? Min is a short-term, punctual is a short-term, punctual concept closer to the notion of concept closer to the notion of liquidity riskliquidity risk..
• The variables in the denominator are The variables in the denominator are nominal, not real:nominal, not real: special care to be special care to be given to their respective deflatorsgiven to their respective deflators
