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Public Debt and r - g at Risk
Author:
Weicheng Liannull

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,
Mr. Andrea F Presbitero
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https://orcid.org/0000-0003-4622-941X
, and
Ursula Wiriadinatanull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 137
Language:
English
Publication Date:
24 Jul 2020
DOI:
https://doi.org/10.5089/9781513550794.001
ISBN:
9781513550794
ISSN:
1018-5941
Pages:
42
Keywords:
WP; interest rate-growth differential; debt country; interest-rate response; interest rates environment; U.S. dollar; Public debt; Interest rate-growth differential; Shocks; Fiscal policy; Foreign currency debt; FX share group; public debt-to-GDP; Long term interest rates; Currencies; 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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As interest rate-growth differentials (r-g) turned negative in many countries, governments consider pursuing fiscal expansion and the potential risks involved. Using a large sample of advanced and emerging economies, our analysis suggests that high public debts can lead to adverse future r-g dynamics. Specifically, countries with higher initial public debt experience (i) a shorter duration of negative r-g episodes and a higher probability of reversal, (ii) higher average r-g, and (iii) a more right-skewed r-g distribution, that implies higher down-side risks. Furthermore, high-debt countries experience larger increases in interest rates in response to (iv) an unexpected decline in domestic output and (v) an increase of global volatility. Results are stronger when public debts are denominated in foreign currencies.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2020: Issue 137