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What really drives public debt

What really drives public debt

Through the Global Crisis, sovereign debt-to-GDP ratios grew substantially when confronted with shocks to growth, increased fiscal deficits, bank recapitalisation costs, and rising borrowing costs. This column talks about how these various shocks connect to one another to exacerbate or mitigate the eventual effect on debt. Selection of monetary policy regime can be an important determinant of how public debt reacts to these shocks.

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Government debt and the term premium new results from old data

The results claim that supply effects do play a substantial role in driving longer-term interest levels. There are two caveats on these results. First, if debt managers seek to improve the maturity of debt when longer-term interest levels are expected to go up later on, our results could be somewhat upward-biased. But we remember that in the time we study, many changes in the maturity of debt were led by legislation, instead of any short-run response to advertise conditions (e.g. in 1976 and 2001). And, second, if we extend the estimation sample there is some proof structural instability from 2008 onwards, which could very well be hardly surprising, and additional motivates the usage of the pre-crisis period.

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Fiscal stimulus in times of high public debt reconsidering multipliers and twin deficits vox, cepr

Fiscal multipliers and twin deficits: How everything fits together

The national income accounting identities reveal that current account equals the gap between total domestic saving and investment. The public-sector deficit measures public dis-saving. The result of the ‘twin deficits’ (government and current account) to a fiscal shock is thus associated with how private saving and investment choice respond to the shock.

Specifically, private agents’ behaviour depend, inter alia, on what fiscal shocks are perceived. These perceptions will normally rely upon the economic environment – especially debt sustainability.