Stochastic debt projections are essential for understanding uncertainties in debt dynamics and ensuring robust debt sustainability analyses. The Commission's stochastic debt sustainability analysis (SDSA) currently features two technical aspects that deserve to be addressed: i) the non-consideration of the persistence of shocks and ii) the assumption of a Gaussian distribution for simulating shock trajectories. This paper presents two technical refinements to improve the Commission's SDSA by i) allowing for the persistence of shocks by applying a pre-filtering approach with a shock-specific lag structure across all countries and ii) implementing a bootstrapping technique to relax the Gaussian distribution assumption. These new features will be incorporated in the Commission's DSA, to identify fiscal sustainability risks.
Bec et al. (Wed,) studied this question.