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Bailing Out the People? When Private Debt Becomes Public
Author:
Samba Mbayenull

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,
Ms. Marialuz Moreno Badia
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Kyungla Chaenull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 141
Language:
English
Publication Date:
13 Jun 2018
DOI:
https://doi.org/10.5089/9781484361658.001
ISBN:
9781484361658
ISSN:
1018-5941
Pages:
45
Keywords:
WP; debt ratio; financial crisis; private sector; fiscal policy; deleveraging; public debt; private debt; leverage cycles; bailout; interest rate; leverage flow; debt substitution; advanced economy; GDP trend; GDP ratio; net debt repayment; nonfinancial private sector; debt database; definition of Private; Emerging and frontier financial markets; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper documents a form of private sector bailout that is much more common (and yet unnoticed) than the typical bank bailout. Building on the newly-created Global Debt Database, we show that excess private debt systematically turns into higher public debt, regardless of whether the credit boom resulted in a crisis or a more orderly deleveraging process. This debt migration operates mainly through growth rather than explicit bailouts: private deleveraging weighs on activity, prompting a countercyclical government response to support economic activity. Ultimately, whether this debt substitution results in a net increase or a net decline of overall indebtedness in the economy depends on the extent of the growth slowdown during the deleveraging spell. These findings suggest that markets and policymakers should move away from looking at private and sovereign debt in silos and pay closer attention to the total stock of debt in the economy, as the line between the two tends to become blurry.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2018: Issue 141