Inflation and Public Debt Reversals in Advanced Economies
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 r...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/178761580308301016/Inflation-and-Public-Debt-Reversals-in-Advanced-Economies http://hdl.handle.net/10986/33265 |
| Summary: | 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
the 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 the public debt burden only
marginally in many advanced economies. |
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