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Inflation and Public Debt Reversals in Advanced Economies
Author:
Ichiro Fukunaga null

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Mr. Takuji Komatsuzaki
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Hideaki Matsuoka null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 297
Language:
English
Publication Date:
27 Dec 2019
DOI:
https://doi.org/10.5089/9781513521596.001
ISBN:
9781513521596
ISSN:
1018-5941
Pages:
23
Keywords:
WP; inflation shock; Inflation; public debt; financial repression; advanced economies; deflation shock; rollover ratio; inflation expectation; debt maturity; Debt reduction; Long term interest rates; Deflation; 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 quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund