The goal of this study is to develop a fiscal policy index (FPI) that looks at the current fiscal stance of a country based on a comparison of the government’s specific target of the debt-GDP ratio for a given finite horizon with a forecast of the debt-GDP ratio. The FPI will provide the GoM with a useful and simple economic and public-sector management and monitoring tool in short and mid-term that can support public expenditure decisions and enhanced fiscal discipline.

When creating this index, a Bayesian VAR (BVAR) model was employed considering the relatively short series of data available for Mongolia as well as its ease of calculation. Utilizing the BVAR model, the research employed the methodology put forth by Polito and Wickens (2006) in order to create a forward looking measure of fiscal stance