Interest-Growth Differentials and Debt Limits in Advanced Economies PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Interest-Growth Differentials and Debt Limits in Advanced Economies PDF full book. Access full book title Interest-Growth Differentials and Debt Limits in Advanced Economies by Philip Barrett. Download full books in PDF and EPUB format.
Author: Philip Barrett
Publisher: International Monetary Fund
ISBN: 1484350987
Category : Business & Economics
Languages : en
Pages : 55
Get Book Here
Book Description
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.
Author: Philip Barrett
Publisher: International Monetary Fund
ISBN: 1484350987
Category : Business & Economics
Languages : en
Pages : 55
Get Book Here
Book Description
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.
Author: Philip Barrett
Publisher:
ISBN:
Category :
Languages : en
Pages : 55
Get Book Here
Book Description
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.
Author: Mr.Julio Escolano
Publisher: International Monetary Fund
ISBN: 1463924550
Category : Business & Economics
Languages : en
Pages : 31
Get Book Here
Book Description
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.
Author: Philip Barrett
Publisher: International Monetary Fund
ISBN: 148435205X
Category : Business & Economics
Languages : en
Pages : 55
Get Book Here
Book Description
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.
Author: Mr.Tigran Poghosyan
Publisher: International Monetary Fund
ISBN: 1475529147
Category : Business & Economics
Languages : en
Pages : 26
Get Book Here
Book Description
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.
Author: M. Ayhan Kose
Publisher: World Bank Publications
ISBN: 1464815453
Category : Business & Economics
Languages : en
Pages : 403
Get Book Here
Book Description
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.
Author: Ms.Carmen Reinhart
Publisher: International Monetary Fund
ISBN: 1498338380
Category : Business & Economics
Languages : en
Pages : 47
Get Book Here
Book Description
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.
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN: 1498324029
Category : Business & Economics
Languages : en
Pages : 109
Get Book Here
Book Description
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.
Author: Mr.Paolo Mauro
Publisher: International Monetary Fund
ISBN: 1513536079
Category : Business & Economics
Languages : en
Pages : 32
Get Book Here
Book Description
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.
Author: Mr.Carlo Cottarelli
Publisher: International Monetary Fund
ISBN: 1451854862
Category : Business & Economics
Languages : en
Pages : 26
Get Book Here
Book Description
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.
