Public debt and economic growth: There is no ‘tipping point’

Markus Eberhardt, Andrea F Presbitero 17 November 2013

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The presence of a common threshold, or ‘tipping point’ – beyond which the detrimental impact of debt on growth is significant, or significantly increases – is currently taken as given in many policy circles. In the US, although many political battles impinge on the Congressional debate over the debt ceiling and the resulting government shutdown of October 2013, this somewhat reflected a widespread belief that debt is dangerous, and that fiscal austerity represents the only way of restoring sustainable growth.

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Topics:  Macroeconomic policy

Tags:  growth, debt, austerity

The Scottish question

Angus Armstrong, Monique Ebell 26 October 2013

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In less than one year, on 18 September 2014, the Scottish electorate will vote on a question of historic significance – should Scotland remain in the UK, or should it become an independent country?

But what would an independent Scotland look like? We think that one important question that has not received nearly enough attention is debt. How will the existing UK government debt be divided between an independent Scotland and the continuing UK – assuming the remaining home nations constitute the continuing UK (Tierney 2013)?

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  independence, debt, Currency unions, Scotland, sterling

Sovereigns versus banks: Crises, causes and consequences

Òscar Jordà, Moritz Schularick, Alan Taylor 18 October 2013

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Some observers – often with great conviction – see the European crisis through the lens of public finance (Alessandrini et al. 2012). They see the key source of the problem as the inherent inability of past governments (many in the periphery, and possibly soon even some in the core) to live within their means. For these observers, stricter fiscal rules – a ‘better Maastricht’ – are what would have saved the day, and what will now be required to prevent another crisis down the road.

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Topics:  Economic history Financial markets Macroeconomic policy

Tags:  financial crises, business cycles, debt, fiscal space

The IMF and the legacy of the euro crisis

Susan Schadler 15 October 2013

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The IMF will live with the legacy of its role in the European debt crisis for years — if not decades.

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Topics:  Global governance International finance

Tags:  IMF, debt, EZ crisis

Enhancing the global financial safety net through central-bank cooperation

Edwin M. Truman 10 September 2013

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The prospect that the Federal Reserve will soon ease off on its purchases of long-term assets has increased financial-market uncertainty and contributed to a retrenchment in global capital flows. This turbulence has revived discussion of the need to enhance the global financial safety net –i.e. the set of arrangements to provide international liquidity to countries facing sharp reversals in capital inflows despite following sound economic and financial policies.1

The dominant lessons from the financial crises of the past decade are:

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Topics:  Global crisis International finance

Tags:  Central Banks, liquidity, banking, debt

External liabilities and crisis risk

Luis AV Catão, Gian Maria Milesi-Ferretti 04 September 2013

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Much has been written about the causes of the global financial crisis of 2008 – the role of the US subprime crisis as a triggering event, the generalised period of easy credit and financial excesses fuelling growing economic and financial vulnerabilities, the failures to properly regulate large systemic financial institutions. Nevertheless, our understanding of the intensity with which the crisis has affected different countries remains modest (Rose and Spiegel 2009, 2011).

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Topics:  Global crisis

Tags:  debt, Eurozone crisis, net external debt, liabilities

Eurobonds: The design is crucial

Roel Beetsma, Konstantinos Mavromatis 21 December 2012

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The debt crisis in Eurozone southern states has given rise to a number of measures to strengthen fiscal governance in Europe. It has also sped up plans for further integration of policymaking in the Eurozone. The European Council (2012) envisages the transition to a genuine economic and monetary union being based on four building blocks: an integrated financial framework (a ‘banking union’); an integrated budgetary framework; an integrated economic policy framework and measures to ensure the democratic legitimacy; and accountability of decision-making in the EMU.

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Topics:  EU institutions

Tags:  debt, Eurozone crisis, debt restructuring, eurobonds

Solving the macroeconomic policy challenge in Europe

Richard Wood 19 December 2012

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Countries in Europe are either slipping into recession or experiencing worsening depression. Economies are headed in the wrong direction, and the malaise is spreading. The current orthodoxies are failing.

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Topics:  Macroeconomic policy

Tags:  Subprime, debt, macroeconomic policy, quantitative easing

Cut deficits by cutting spending

Alberto Alesina 30 November 2012

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Should debt-ridden and economically struggling Western governments be doing everything possible to reduce their deficits? The debate over that question has become increasingly confusing – not only in Europe, where the matter is particularly urgent – but in the US, too. Those in favour of immediate deficit reduction argue that it is a necessary precondition of economic growth. Today’s deficits become tomorrow’s debt, they say, and too much debt can bring fiscal crises, including government defaults.

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Topics:  Europe's nations and regions Global crisis

Tags:  fiscal policy, global crisis, debt, Eurozone crisis

Effects of commodity price windfalls on external debt: The role of political institutions

Rabah Arezki, Markus Brückner 15 June 2012

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Booming commodity prices have generated large foreign currency inflows for commodity exporting nations. Such inflows, however, are not always associated with positive outcomes for the commodity exporters. Phenomena such as corruption (Bhattacharyya and Hodler 2009) and the ‘natural resource curse’ (Brunnschweiler and Bulte 2012) often plague nations rich in natural resources. The political impact of large foreign currency inflows are important (Brollo et al. 2010), as is the optimal management of the revenue (Van der Ploeg and Venables 2011).

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Topics:  Development Macroeconomic policy

Tags:  resource curse, political regimes, debt

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