computer science

Public Sector Credit Framework

Public Sector Credit Framework is a computer science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Public Sector Credit Framework rather than just read about it. In short: The Public Sector Credit Framework is an open source tool for estimating the default risk of and assigning ratings to government debt. The PSCF installation package was released on May 2, 2012.

Key takeaways

Public Sector Credit Framework belongs to computer science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Public Sector Credit Framework to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Public Sector Credit Framework from memory before moving on to harder problems.

Reference excerpt

The Public Sector Credit Framework is an open source tool for estimating the default risk of and assigning ratings to government debt. The PSCF installation package was released on May 2, 2012. At the same time, source code was published on GitHub. The publishers, PF2 Securities Evaluations and Public Sector Credit Solutions, said that they released the software in response to the need for "transparent, objective and up-to-date government credit ratings." The project has similar goals to an earlier mass collaboration bond rating effort, Wikirating.

Description PSCF calculates government default probabilities through the use of a multi-year fiscal simulation and a default point, expressed in terms of a user-specified financial ratio. The proportion of simulation trials surpassing the default point represents the default probability for a given year. The simulation is typically created in an Excel worksheet. Each row of the worksheet represents a different user specified series. Series may contain random numbers, macroeconomic variables, revenues, expenditures and debt levels. In a typical simulation, random numbers are listed first, then macroeconomic variables are specified as functions of the random variables (as well as constants and previous levels of the macroeconomic variable). Revenues and expenditures can then be expressed as functions of the macroeconomic variables.

Antecedents The use of a fiscal simulation as a tool for rating government bonds appears to be unique to PSCF. However, simulation has been used as a tool for rating other fixed income assets and fiscal simulations have been used by some budget authorities.

Technology The framework combines a user interface written in Microsoft Excel with a processing engine written in GNU C. Developers have expressed an intention to support a full open source run-time environment. According to PSCF's creators, Excel was chosen as the initial user interface platform because of its popularity in the financial community. The PSCF user enters model parameters in Excel and then launches a control panel implemented in Excel VBA. When the user runs an analysis from within the control panel, his or her entries are converted to a C program, which is then compiled and executed. Outputs from the C program are returned to new tabs in the Excel workbook. The C program performs a multi-year budget simulation using random number generation routines from the open source Boost C++ Library. Version 1.1 released in May 2013 added support for multi-threading, accelerating calculations on systems with multiple processors or multiple cores.

History The initial release of PSCF was accompanied by sample rating models for the United States and for the state of California. A preliminary model for Italy was published in July 2012. After its release, the framework received coverage on The Financial Times Alphaville web site. Reporter Joseph Cotterill noted that the framework had the potential to produce "a view of sovereign credit free of the subjectivity and bias that could creep into more qualitatively-based ratings judgements." The framework was also covered in Government Technology News, in The Bond Buyer, and on Shareable.net, among other publications. The Shareable article described inconsistencies between corporate and government bond ratings that allegedly resulted in taxpayers paying for unnecessary government bond insurance. In July 2012, the software was covered on The Lang and O'Leary Exchange, a prime time business program on CBC. Later that month, the developers of PSCF released an Italian sovereign default probability model which was reported in the daily version of Milano Finanza, MF. In August 2012, the framework was presented at the Municipal Finance Conference at Brandeis University. Public Sector Credit Solutions also posted a YouTube! video describing the rationale for PSCF as well as its use. In September 2012, PSCF was the subject of an article in a peer-reviewed economics journal. As of late 2013, PSCF had not been mentioned in other journal articles, but it has appeared in economist blog posts. Economist Krassimir Petrov discussed the weaknesses of sovereign bond ratings and the potential role of PSCF in improving them in a November 30, 2013 post in Naked Capitalism. Diane Lim, then Chief Economist for the Concord Coalition, discussed PSCF and its implications for US Treasury rates in The Tabulation on September 6, 2013.

Canadian Province Study In October 2012, the Macdonald-Lauirer Institute published a study entitled "Provincial Solvency and Federal Obligations" which contained default probability estimates for the ten Canadian provinces generated by PSCF. The study's findings were reported by major Canadian media including the Financial Post, Globe and Mail, Maclean's magazine and the Canadian Broadcasting Corporation.

Illinois Study Another study using PSCF default probabilities was released in June 2013 by the Mercatus Center. This analysis, "Modeling Credit Risks in Illinois and Indiana", concluded that Illinois did not have substantial credit risk and that yields on Illinois bonds were exaggerated.

References

Worked examples

Example 1 — a first encounter with Public Sector Credit Framework

Start with the simplest possible case. Write down what Public Sector Credit Framework claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In computer science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Public Sector Credit Framework before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Public Sector Credit Framework ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Public Sector Credit Framework

In research: Public Sector Credit Framework appears in computer science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Public Sector Credit Framework in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Public Sector Credit Framework is common in secondary-school and first-year university syllabi. It links to neighbouring topics Numerical software, Political software, so understanding it makes those chapters shorter.
In everyday life: Look for Public Sector Credit Framework outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Public Sector Credit Framework in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Public Sector Credit Framework means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Public Sector Credit Framework out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Public Sector Credit Framework in simple terms?

The Public Sector Credit Framework is an open source tool for estimating the default risk of and assigning ratings to government debt. The PSCF installation package was released on May 2, 2012.

Why does Public Sector Credit Framework matter?

Because it connects several computer science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Public Sector Credit Framework?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Public Sector Credit Framework.