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International Monetary Fund

function of public debt—rising, as the gap falls between debt and its 60 percent of GDP target; and rising with trend GDP—measured as a 10 year moving average—and with projected inflation. This formula caps real spending growth in 2011–12 budget at 2.66 percent. The more restrictive of the two rules takes precedence; for example, spending will be held below the formula level if necessary to secure the deficit path and vice versa, the deficit will be held below the deficit ceiling if necessary to adhere to expenditure ceiling rule. In addition, the aggregate fiscal

Mr. Antonio David and Natalija Novta
Paraguay faces a trade-off between building fiscal credibility and amending the existing fiscal rule to accommodate infrastructure investment and provide space for countercyclical policies. In this paper, we discuss several alternative fiscal rules for Paraguay and present simulations of debt trajectories in each case, assuming a baseline and three deterministic shock scenarios. We provide a supplementary Excel file to replicate debt simulations under different fiscal rules. The results suggest that potential modifications to make the fiscal rules more flexible in Paraguay should be accompanied by a number of safeguards that enhance credibility of the fiscal anchor and preserve sustainability.
International Monetary Fund. Western Hemisphere Dept.

current form. In that context, this option could be perceived by the private sector as a dilution of fiscal discipline. Making the Deficit Rule More Flexible: Moving to a Structural Balance Rule 33. A move towards a structural or cyclically-adjusted balance rule could yield more favorable results in terms of economic stabilization . The current deficit ceiling rule expressed in headline terms could lead to procyclical policies by not providing flexibility to respond to economic shocks. In contrast, a structural balance rule would allow for the full operation of

International Monetary Fund
The study shows that the Israeli economy has emerged unscathed from the global financial crisis. The first part of the study outlines the relationship between risk and Israel’s macroeconomic performance, estimated through a regression analysis. The second part of the study focuses on macrofinancial policies to cope with macrofinancial risk, with special emphasis on monetary and fiscal intervention. The study shows that stress testing and CCA analysis play a role in supervisory work; they complement and can inform each other in critical areas.
Mr. Marcel Peter and Martín Grandes

Front Matter Page Monetary and Financial Systems Department Authorized for distribution by Peter Stella Contents I. Introduction A. Why South Africa? B. Sovereign Risk and the Country or Sovereign Ceiling Rule II. Review of Related Literature III. Theoretical Framework: Determinants of the Corporate Default Premium A. Starting Point: The Merton (1974) Model B. Adding Stochastic Interest Rates: The Shimko, Tejima, and Van Deventer (1993) Model C. Adding Sovereign Risk D. Other Potential Determinants E. Synthesis IV