Political stability and economic policy uncertainty can be key determinants of sovereign debt dynamics, and we show how theycan be incorporated in debt sustainability analysis.We distinguish between short-term ambiguity and long-term uncertainty about political risk factors, and using a combination ofnarrative scenarios and calibrated probabilistic scenarios we obtain a comprehensive heatmap of high-risk debt dynamics. Weuse Italy as an interesting case study and demonstrate a “red shift” in the assessment of vulnerabilities when accounting forpolitical risks. Ignoring these risks can lead to excessive optimism and wrong decisions.
|Numero di pagine||8|
|Rivista||RISK MANAGEMENT MAGAZINE|
|Stato di pubblicazione||Published - 2020|