Policy Space Index: Short-Term Response to a Catastrophic Event

June 17, 2022

Preview Citation

Format: Chicago

José Ferrer, and Alexei P Kireyev. Policy Space Index: Short-Term Response to a Catastrophic Event, (USA: International Monetary Fund, 2022) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

What policy space does a country have for a short-term response to a catastrophic event? To quantify this space, the paper proposes a policy space index. The index combines a quantitative, albeit relatively limited and narrow, fiscal space concept with the indicators of nominal monetary space and reserve space. Each nominal policy space indicator is then adjusted for individual country’s institutional features, such as the status of its currency, income group, access to capital markets, debt distress level, and the exchange rate regime. The final policy space index is derived as a composite of the three nominal policy space indicators, each adjusted for five institutional features. This index is different from the approach to measure fiscal space at the IMF and requires more work before it can be used operationally. The proposed index allows measuring the overall policy space in each country directly in percent of GDP. By way of illustration, the paper applies the index to the Covid-19 crisis.

Subject: Central bank policy rate, Debt sustainability, Exchange rate arrangements, External debt, Financial services, Fiscal policy, Fiscal space, Foreign exchange, Money, Reserve currencies

Keywords: Central bank policy rate, Debt sustainability, Exchange rate arrangements, Fiscal space, Foreign reserves, Global, Market access, Policy space, Policy space decision trees, Public debt, Reserve currencies, Space calculation, Space decision trees, Space index, Space indicator, Space matrix

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/123
Stock No:

WPIEA2022123
ISBN:

9798400213519
ISSN:

1018-5941

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