Historic levels of public debt and conditions of r < g for advanced economies have prompted a reassessment of debt sustainability. Using a continuous-time model in which the debt-to-GDP ratio is stochastic and r < g on average, we find that theoretical condi- tions for sustainability are not closely tied to common metrics of sustainability: the level of debt or whether r < g. However, when the primary surplus is bounded, a state-dependent threshold level of public debt determines sustainability. Secular stagnation factors like slow population growth, low productivity growth, or higher output risk carry differing implica- tions for debt sustainability

Debt sustainability in a low interest rate world

Sergeyev, Dmytro
2021

Abstract

Historic levels of public debt and conditions of r < g for advanced economies have prompted a reassessment of debt sustainability. Using a continuous-time model in which the debt-to-GDP ratio is stochastic and r < g on average, we find that theoretical condi- tions for sustainability are not closely tied to common metrics of sustainability: the level of debt or whether r < g. However, when the primary surplus is bounded, a state-dependent threshold level of public debt determines sustainability. Secular stagnation factors like slow population growth, low productivity growth, or higher output risk carry differing implica- tions for debt sustainability
2021
2021
Mehrotra, Neil R.; Sergeyev, Dmytro
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4044466
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