In many OECD countries, government debt reached levels over recent years that call for reduction over the medium to longer term to ensure public finance sustainability. This paper investigates the international transmission of fiscal consolidation shocks via trade flows. Using a measure of...

In this paper we develop a simple analytical framework to analyze “good” and “bad equilibria” in public-debt and growth dynamics. The “bad equilibrium” is characterised by the simultaneous occurrence, and adverse feedbacks between, high and growing fiscal deficits and debt, high risk...

With gross government debt surpassing 200% of GDP, Japan’s fiscal situation is in uncharted territory. In addition to robust nominal GDP growth, correcting two decades of budget deficits requires a large and sustained fiscal consolidation based on a detailed and credible multi-year plan that...

This paper develops a simple model-based framework for stress testing fiscal consolidation strategies under different scenarios of future shocks. A baseline scenario assuming a gradual debt consolidation is presented and by assuming different future developments (e.g. lower potential growth)...

This paper analyses the monetary and fiscal policy implications of output gap estimates in times of crisis. The widening of output gaps observed in major OECD economies in the wake of the recent crisis has been mainly due to total factor productivity gaps, except in the United States where it...

This paper assesses the OECD’s projections for GDP growth and inflation during the global financial crisis and recovery, focussing on lessons that can be learned. The projections repeatedly over-estimated growth, failing to anticipate the extent of the slowdown and later the weak pace of the...

Economic downturns which have their roots in preceding credit excesses and debt overhang have tended historically to be long lasting, whether the financial sector remained healthy or not. There are no good reasons to believe the current global crisis will be any different. Moreover, it is argued...

The challenge for fiscal policy in Slovakia is to achieve fiscal consolidation in a way which supports the fragile recovery and protects spending on areas which are important for re-embarking on a trajectory of high trend growth and underpinning a catch-up in living standards. While the recently...

Turkey recovered swiftly from the global financial crisis but sizeable macroeconomic imbalances arose in the process. High consumer price inflation and a wide current account deficit are sources of vulnerability. Even though below-potential growth helps rebalancing and disinflation, these...

Effective macroeconomic and structural policies helped Turkey bounce back quickly and strongly from the global crisis, with annual growth averaging close to 9% over 2010-11. However, the current account deficit widened to around 10% of GDP in 2011 and consumer price inflation rose to over 10%....