Download or read book Interest Growth Differentials and Debt Limits in Advanced Economies written by Philip Barrett and published by International Monetary Fund. This book was released on 2018-04-06 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do persistently low nominal interest rates mean that governments can safely borrow more? To addresses this question, I extend the model of Ghosh et al. [2013] to allow for persistent stochastic changes in nominal interest and growth rates. The key model parameter is the long-run difference between nominal interest and growth rates; if negative, maximum sustainable debts (debt limits) are unbounded. I show how both VAR- and spectral-based methods produce negative point estimates of this long-run differential, but cannot reject positive values at standard significance levels. I calibrate the model to the UK using positive but statistically plausible average interest-growth differentials. This produces debt limits which increase by only around 5% GDP as interest rates fall after 2008. In contrast, only a tiny change in the long-run average interest-growth differential – from the 95th to the 97.5th percentile of the distribution – is required to move average debt limits by the same amount.

Download or read book Interes growth Differentials and Debt Limits in Advanced Economies written by Philip Barrett and published by . This book was released on 2018 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do persistently low nominal interest rates mean that governments can safely borrow more? To addresses this question, I extend the model of Ghosh et al. [2013] to allow for persistent stochastic changes in nominal interest and growth rates. The key model parameter is the long-run difference between nominal interest and growth rates; if negative, maximum sustainable debts (debt limits) are unbounded. I show how both VAR- and spectral-based methods produce negative point estimates of this long-run differential, but cannot reject positive values at standard significance levels. I calibrate the model to the UK using positive but statistically plausible average interest-growth differentials. This produces debt limits which increase by only around 5% GDP as interest rates fall after 2008. In contrast, only a tiny change in the long-run average interest-growth differential – from the 95th to the 97.5th percentile of the distribution – is required to move average debt limits by the same amount.

Download or read book The Puzzle of Persistently Negative Interest Rate Growth Differentials written by Mr.Julio Escolano and published by International Monetary Fund. This book was released on 2011-11-01 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interest rate-growth differential (IRGD) shows a marked correlation with GDP per capita. It has been on average around 1 percentage point for large advanced economies during 1999-2008; but below -7 percentage points among non-advanced economies - exerting a powerful stabilizing influence on government debt ratios. We show that large negative IRGDs are largely due to real interest rates well below market equilibrium - possibly stemming from financial repression and captive and distorted markets, whereas the income catch-up process plays a relatively modest role. We find econometric support for this conjecture. Therefore, the IRGD in non-advanced economies is likely to rise with financial integration and market development, well before their GDP per capita converges to advanced-economy levels.

Download or read book Long Run and Short Run Determinants of Sovereign Bond Yields in Advanced Economies written by Mr.Tigran Poghosyan and published by International Monetary Fund. This book was released on 2012-11-08 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze determinants of sovereign bond yields in 22 advanced economies over the 1980-2010 period using panel cointegration techniques. The application of cointegration methodology allows distinguishing between long-run (debt-to-GDP ratio, potential growth) and short-run (inflation, short-term interest rates, etc.) determinants of sovereign borrowing costs. We find that in the long-run, government bond yields increase by about 2 basis points in response to a 1 percentage point increase in government debt-to-GDP ratio and by about 45 basis points in response to a 1 percentage point increase in potential growth rate. In the short-run, sovereign bond yields deviate from the level determined by the long-run fundamentals, but about half of the deviation adjusts in one year. When considering the impact of the global financial crisis on sovereign borrowing costs in euro area countries, the estimations suggest that spreads against Germany in some European periphery countries exceeded the level determined by fundamentals in the aftermath of the crisis, while some North European countries have benefited from “safe haven” flows.

Download or read book Interest Growth Differentials and Debt Limits in Advanced Economies written by Philip Barrett and published by International Monetary Fund. This book was released on 2018-04-11 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do persistently low nominal interest rates mean that governments can safely borrow more? To addresses this question, I extend the model of Ghosh et al. [2013] to allow for persistent stochastic changes in nominal interest and growth rates. The key model parameter is the long-run difference between nominal interest and growth rates; if negative, maximum sustainable debts (debt limits) are unbounded. I show how both VAR- and spectral-based methods produce negative point estimates of this long-run differential, but cannot reject positive values at standard significance levels. I calibrate the model to the UK using positive but statistically plausible average interest-growth differentials. This produces debt limits which increase by only around 5% GDP as interest rates fall after 2008. In contrast, only a tiny change in the long-run average interest-growth differential – from the 95th to the 97.5th percentile of the distribution – is required to move average debt limits by the same amount.

Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Download or read book The Liquidation of Government Debt written by Ms.Carmen Reinhart and published by International Monetary Fund. This book was released on 2015-01-21 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: High public debt often produces the drama of default and restructuring. But debt is also reduced through financial repression, a tax on bondholders and savers via negative or belowmarket real interest rates. After WWII, capital controls and regulatory restrictions created a captive audience for government debt, limiting tax-base erosion. Financial repression is most successful in liquidating debt when accompanied by inflation. For the advanced economies, real interest rates were negative 1⁄2 of the time during 1945–1980. Average annual interest expense savings for a 12—country sample range from about 1 to 5 percent of GDP for the full 1945–1980 period. We suggest that, once again, financial repression may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies.

Download or read book Global Financial Stability Report October 2019 written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2019-10-16 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: The October 2019 Global Financial Stability Report (GFSR) identifies the current key vulnerabilities in the global financial system as the rise in corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors, and growing reliance on external borrowing by emerging and frontier market economies. The report proposes that policymakers mitigate these risks through stricter supervisory and macroprudential oversight of firms, strengthened oversight and disclosure for institutional investors, and the implementation of prudent sovereign debt management practices and frameworks for emerging and frontier market economies.

Download or read book The Cost of Future Policy Intertemporal Public Sector Balance Sheets in the G7 written by Yugo Koshima and published by International Monetary Fund. This book was released on 2021-05-06 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs. In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint. A decomposition of the evolution of INFW shows that short-term fluctuations are mainly driven by fiscal policy changes, while in the long run demographic changes and health and pension obligations play a larger role. We find that on average a 10 percentage point of GDP increase in INFW reduces the (future) 10-1 year sovereign yield curve spread by 2.8 basis points. This results suggest that financial markets pay attention to governments’ future policy obligations, in addition to its current assets and liabilities.

Download or read book Government Ponzi Games and Debt Dynamics Under Uncertainty written by Mr.Carlo Cottarelli and published by International Monetary Fund. This book was released on 1991-12-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the conditions for sustainability of debt roll-over schemes under uncertainty. In contrast with the requirements identified in recent research, we show that a necessary and sufficient condition for sustainability of such schemes is that the asymptotic interest rate on government debt be lower than the asymptotic growth rate of the economy, a natural extension of a familiar criterion in a deterministic framework. However, we also show that for realistic parameter values, Ponzi games that are sustainable in the long run may display explosive patterns over relatively long horizons. This may explain why governments may be reluctant to play Ponzi games even when they are feasible in the long run.

Download or read book Sovereign Debt written by S. Ali Abbas and published by Oxford University Press. This book was released on 2019-10-21 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: The last time global sovereign debt reached the level seen today was at the end of the Second World War, and this shaped a generation of economic policymaking. International institutions were transformed, country policies were often draconian and distortive, and many crises ensued. By the early 1970s, when debt fell back to pre-war levels, the world was radically different. It is likely that changes of a similar magnitude -for better and for worse - will play out over coming decades. Sovereign Debt: A Guide for Economists and Practitioners is an attempt to build some structure around the issues of sovereign debt to help guide economists, practitioners and policymakers through this complicated, but not intractable, subject. Sovereign Debt brings together some of the world's leading researchers and specialists in sovereign debt to cover a range of sub-disciplines within this vast topic. It explores debt management with debt sustainability; debt reduction policies with crisis prevention policies; and the history with the conjuncture. It is a foundation text for all those interested in sovereign debt, with a particular focus real world examples and issues.

Download or read book r minus g negative Can We Sleep More Soundly written by Mr.Paolo Mauro and published by International Monetary Fund. This book was released on 2020-03-13 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contrary to the traditional assumption of interest rates on government debt exceeding economic growth, negative interest-growth differentials have become prevalent since the global financial crisis. As these differentials are a key determinant of public debt dynamics, can we sleep more soundly, despite high government debts? Our paper undertakes an empirical analysis of interestgrowth differentials, using the largest historical database on average effective government borrowing costs for 55 countries over up to 200 years. We document that negative differentials have occurred more often than not, in both advanced and emerging economies, and have often persisted for long historical stretches. Moreover, differentials are no higher prior to sovereign defaults than in normal times. Marginal (rather than average) government borrowing costs often rise abruptly and sharply, but just prior to default. Based on these results, our answer is: not really.

Download or read book The Paradox of Fiscal Austerity written by Justin Vélez-Hagan and published by Rowman & Littlefield. This book was released on 2019-12-12 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: If governments followed the optimal fiscal policy path, surpluses in good times would counter necessary deficits during economic downturns, leading to worldwide balance. The world, however, has chosen to go in a different direction in recent decades, avoiding thrift in light of a decidedly more indebted future. When financial crises kicked off a global recession in 2008, the spotlight placed on countries’ fiscal conditions put pressure on policymakers around the globe to find a way to slow the growth of deficits and debt by imposing fiscal consolidations (or, more simply, austerity). How have these policies fared across the developed world? Were they even necessary to begin with? This book examines the many factors that have contributed to the success (or failure) of such policies, including timing, magnitude, accompanying policies, composition, and more, while explaining the economic rationale behind their choices.

Download or read book World Economic Outlook April 2016 written by International Monetary Fund. Research Dept. and published by International Monetary Fund. This book was released on 2016-04-12 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: Major macroeconomic realignments are affecting prospects differentially across the world’s countries and regions. The April 2016 WEO examines the causes and implications of these realignments—including the slowdown and rebalancing in China, a further decline in commodity prices, a related slowdown in investment and trade, and declining capital flows to emerging market and developing economies—which are generating substantial uncertainty and affecting the outlook for the global economy. Additionally, analytical chapters examine the slowdown in capital flows to emerging market economies since their 2010 peak—its main characteristics, how it compares with past slowdowns, the factors that are driving it, and whether exchange rate flexibility has changed the dynamics of the capital inflow cycle—and assess whether product and labor market reforms can improve the economic outlook in advanced economies, looking at the recent evolution and scope for further reform, the channels through which reforms affect economic activity under strong versus weak economic conditions, reforms’ short- to medium-term macroeconomic effects, and sequencing of reforms and coordination with other policies to maximize their potential quantitative economic benefits. A special feature analyzes in depth the energy transition in an era of low fossil fuel prices.

Download or read book Debt Is Not Free written by Ms.Marialuz Moreno Badia and published by International Monetary Fund. This book was released on 2020-01-03 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: With public debt soaring across the world, a growing concern is whether current debt levels are a harbinger of fiscal crises, thereby restricting the policy space in a downturn. The empirical evidence to date is however inconclusive, and the true cost of debt may be overstated if interest rates remain low. To shed light into this debate, this paper re-examines the importance of public debt as a leading indicator of fiscal crises using machine learning techniques to account for complex interactions previously ignored in the literature. We find that public debt is the most important predictor of crises, showing strong non-linearities. Moreover, beyond certain debt levels, the likelihood of crises increases sharply regardless of the interest-growth differential. Our analysis also reveals that the interactions of public debt with inflation and external imbalances can be as important as debt levels. These results, while not necessarily implying causality, show governments should be wary of high public debt even when borrowing costs seem low.

Download or read book Negative Interest Rates written by Luís Brandão Marques and published by International Monetary Fund. This book was released on 2021-03-03 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on negative interest rate policies and covers a broad range of its effects, with a detailed discussion of findings in the academic literature and of broader country experiences.

Download or read book A Modern Guide to State Intervention written by Nikolaos Karagiannis and published by Edward Elgar Publishing. This book was released on 2019 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 10.0px Arial} A Modern Guide to State Intervention investigates the impact of the changing role of the state, offering an alternative political economy for the third decade of the twenty-first century. Building on important factors including history, the role of institutions, society and economic structures, this Modern Guide considers economic and administrative interventions towards changing the destabilized status quo of modern societies.