Recent stats on global debt – a new record high
In 2016 global debt reached a new record high of $164 trillion, or 225{5e7f07e14add20b2e04f4edb85a447d3cd8121fc27b809645e9fed603c22cc5c} of global GDP.
[…] 63 percent is nonfinancial private sector debt, and 37 percent is public sector debt. Advanced economies are responsible for most global debt. Nevertheless, in the last ten years, emerging market economies have been responsible for most of the increase. China alone contributed 43 percent to the increase in global debt since 2007. In contrast, the contribution from low income developing countries is barely noticeable.
Bringing Down High Debt
By: Vitor Gaspar, Laura Jaramillo – IMF
Monetary policy trade offs and sovereign default risk
Consider a central bank that targets the risky rate. When the economy is near its fiscal limit, a transitory monetary policy contraction leads to a sustained rise in inflation, even though monetary policy actively targets inflation and fiscal policy passively adjusts taxes to stabilize debt. If the central bank targets the risk-free rate, on the other hand, the same transitory monetary contraction keeps inflation under control, but leads output to contract for a prolonged period of time. The comparison shows that sovereign default risk put into sharp relief the tradeoff between inflation and output stabilization.
Sovereign Default and Monetary Policy Tradeoffs
Authors: Huixin Bi, Eric M. Leeper, and Campbell Leith
From: Federal Reserve Bank of Kansas City, Indiana University, University of Glasgow
Optimal public debt
Should we study optimal debt policy in an infinitely lived agent model or in a life cycle model? Peterman and Sager find that optimal policies are strikingly different between the two models: in the infinitely lived agent model, it is optimal for the government to be a net borrower with public debt equal to 24 percent of output; in the life cycle model, on the other hand, it is optimal for the government to be a net saver, not a net borrower, with public savings equal to 61 percent of output. They conclude by arguing that ignoring life cycle characteristics leads to welfare losses that are significant.
Optimal Public Debt with Life Cycle Motives
Authors: William B. Peterman, Erick Sager
From: Federal Reserve Board
How long has this been going on?
This is the February 8, 2010 Forbes magazine issue.
