We develop a new public domestic debt (DD) database covering 93 low-income countries and emerging markets over the 1975-2004 period to estimate the growth impact of DD. Moderate levels of non-inflationary DD, as a share of GDP and bank deposits, are found to exert a positive overall impact on...

This paper examines the macroeconomic implications of life-cycle and dynastic saving behavior for closed and small, open economies. Using an extended version of Blanchard’s overlapping agents model, the analytical framework nests these two competing views, treating agents as either dynastic...

This paper examines the sustainability of fiscal policy under uncertainty in three emerging market countries, Brazil, Mexico, and Turkey. For each country, we estimate a vector autoregression (VAR) that includes fiscal and macroeconomic variables. Retrospectively, a historical decomposition...

Under a monetary dominant (MD) regime, the primary surplus adjusts to limit debt growth, permitting monetary policy to be conducted independently of fiscal financing requirements. In Brazil, some evidence favors an MD regime for 1995–97, but not for the decade of the 1990s as a whole. While...

We analyse optimal monetary and fiscal policy in a New-Keynesian model with public debt and inflation persistence. Leith and Wren-Lewis (2007) have shown that optimal discretionary policy is subject to a ''debt stabilization bias'' which requires debt to be returned to its pre-shock level. This...

On a credit rating-adjusted basis, spreads on U.S. high-yield debt have typically been regarded as a lower bound for emerging market debt. However in the C-rated and defaulted segment, emerging market debt has traded at lower spreads than similarly rated U.S. high yield debt. We show that the...

This paper proposes a probabilistic approach to public debt sustainability analysis (DSA) using ""fan charts."" These depict the magnitude of risks-upside and downside-surrounding public debt projections as a result of uncertain economic conditions and policies. We propose a simulation algorithm...

Fiscal vulnerability describes a situation where a government is exposed to the possibility of failure to meet its aggregate fiscal policy objectives. The suggested framework for assessing vulnerability highlights four macro-fiscal aspects of vulnerability: incorrect specification of the initial...

This paper-consisting of a regional study and seven country studies-reviews the state of domestic public debt markets in Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama as at end-2005. Although they account for the lion''s share of capital markets,...

This paper examines the relationship between government debt and long-term interest rates. A dynamic general equilibrium model that incorporates debt nonneutrality is specified and solved, and numerical simulations using the model are undertaken. In addition, empirical evidence using panel data...