Government Debt and Economic Growth in an Overlapping Generations Model

Prior studies have shown that an increase in government debt raises the real interest rate and lowers the rate of economic growth. In an overlapping generations model of endogenous growth, this paper shows that an increase in government debt may not increase the real interest rate with the real interest rate being greater than the growth and that an introduction of government debt will increase the growth rate of per capita output if the growth rate is greater than the real interest rate and will decrease the growth rate if the growth rate is less than the real interest rate.     

国债利率对债务稳定性影响的理论与实证研究

文章首先概括了1981年至2003年我国发行国债所引起的债务负担情况,并分析了国债利率与债务关系的相关理论模型。然后在推导多马国债模型的基础上,实证分析了我国自1981年以来国债发行利率对债务稳定性的影响的定量关系。分析表明:当国债利率高于经济增长率时,国债所引起的债务     

Brazilian public sector disequilibrium

The Brazilian public sector disequilibrium, as measured by growth in the global net public sector debt to GDP ratio, is examined with and without the Plano Cruzado. Two models are used, one based upon a discrete time framework and the other upon a continuous time framework, to trace paths of the debt to GDP ratio for the rest of the decade concentrating on the 1985–1986 period. Two major conclusions are reached. The first, of a theoretical nature, is that discrete time models are inappropriate in an inflationary context as they severely underestimate the inflation tax. This is evidenced by the fact that without the Plano Cruzado and an assumed inflation rate of 350%, the debt to GDP ratio grows from 1985 to 1986 in the discrete time model while it declines for this period in the continuous time model. The second is that the Plano Cruzado may put strong pressure on government finances in the near future due to the drastic fall in the inflation tax. In this case, both models show an acceleration in the growth of the debt to GDP ratio, the more drastic results appearing in the continuous model. This conclusion seems to hold true even if one allows the government to trade debt for monetary base with the consequent increase in money demand due to lower inflation, to roll over its internal debt at a lower average interest rate, or to roll over its foreign debt outstanding at a lower average interest rate.     

International capital flows,debt overhang and volatility

This paper shows how international capital flows originate boom‐bust and sunspot episodes in a neoclassical growth model of a small, open economy. A limit is imposed on how much the economy can borrow from foreign creditors and it is made endogenous by assuming that the debt‐to‐GDP ratio is procyclical. The steady state is locally indeterminate when the credit multiplier is larger than some threshold level, whereas saddle‐point stability prevails when the credit multiplier is low enough. As a consequence, high levels of the credit multiplier lead to both booms followed by busts and sunspot‐driven volatility near the steady state, while, in contrast, low levels ensure monotonic convergence. Compared with saddle‐path equilibria, boom‐bust and sunspot equilibria are associated with both lower welfare and debt overhang, that is, a crowding‐out effect of credit: when the economy is highly leveraged, it uses savings to cut down foreign debt, at the expense of both human and physical investment. Numerical examples show that indeterminacy arises for debt‐to‐GDP ratios that fall within the range of available estimates. Finally, the effects of shocks to the world interest rate on output and consumption are amplified and persistent in the debt overhang regime.     

Fiscal sustainability and solvency: theory and recent experience in Indonesia

A major challenge for Indonesian economic policy makers is to avoid the recurrence of conditions that could trigger a new economic crisis. One of the important dimensions of this challenge will be to conduct fiscal policy in a way that is sustainable, given the level of interest rates and the rate of growth of the economy. This paper synthesises various approaches to the measurement of fiscal sustainability that have appeared in the economic literature, relates these measures to the fundamental concept of fiscal solvency, and applies the framework to Indonesia over the period 1991–2003. The domestic and foreign debt positions of the central government are treated separately, to capture the influence of exchange rate changes on the relative costs of domestic and foreign borrowing. The empirical analysis indicates that Indonesia has met the fiscal sustainability criterion in recent years, except when the rupiah has depreciated heavily.     

Panama's exports and its sovereign debt

Conclusion Panama has a foreign debt that represents 81.2 percent of GNP. In absolute terms, this is not large by the standards established by countries such as Mexico. For countries like Panama, which are not in the severely indebted middle-income countries, there is a tendency to overlook them with debt assistance programs. In 1989, the Brady Initiative recognized the need to help SIMICs and the Paris Club also stepped in with rescheduling agreements primarily for SIMICs with high official debt. In the 1980s, Panama rescheduled $594 million in debt.That does not reduce the debt; rather, it gives the country more time to pay it off. Exports (or income) growth, if used exclusively to repay the debt, could accomplish that goal in 39 years. But the relationship between existing interest rates and export growth cannot be expected to endure for so long. In fact, it might be impossible for Panama to ever pay off its debt, particularly when its long-term and short-term sum exceed its GNP. If the ratio of debt-to-exports is indeed constant, then Panama will be able to outgrow the debt as long as export growth is greater than the cost of servicing the debt.     

Public Debt,Economic Growth and Inflation in African Economies

We analyse the relationship between public debt, economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt are negatively related to economic growth and exhibit, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. Briefly, the high levels of public debt are coincident with reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the gross domestic product (GDP) and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio of public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. An identical behaviour of the GDP growth rates and inflation also appears in Sub‐Saharan countries until the third interval (60–90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30–60%). For the countries of the Southern Africa Development Community, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. A number of robustness analyses were performed and the great majority of them confirm the general analysis.     

Private capital flows,stock market and economic growth in developed and developing countries: A comparative analysis

Empirically we investigate how three types of private capital flows could promote economic growth in recipient developed and developing countries. Our focus is on the role of stock markets as a channel through which foreign capital flows could promote growth. The findings reveal that FDI exhibits a positive impact on growth, while both foreign debt and portfolio investment have a negative impact on growth in all sample countries. However, our results indicate that stock markets might be a significant channel or leading institutional factor through which capital flows affect economic growth. The findings provide clear implications that the negative impact of private capital flows can be transformed into a positive one if the stock market development has attained a certain threshold level, regardless of whether it is in developed or developing countries.     

Trade,debt, and the Cuban economy

Like many other Latin American countries, Cuba pursued a strategy of “debt-led growth” in the mid-1970s and sustained large balance of payments deficits with the West. Though external balance was restored by 1979, Cuba faced a severe liquidity crisis in 1982 when short-term loans were suddenly withdrawn. This paper is a study of Cuba's seemingly exceptional ability to decrease its foreign debt after 1980, meet interest payments on time, and maintain an overall program of growth with equity. A combination of implicit Soviet trade subsidies, and Cuba's socialist polity and political-economic control, have apparently mitigated the constraints of the “world capitalist system,” and fostered an alternative program to the current austerity measures of most of Latin America.     

Contribution of interest rate control to China’s economic development

China’s economy has grown at an unprecedented pace since 1978, which has resulted in a sustained improvement in the average living standard in China. A theoretical model is developed in the present study to analyze the role of interest rate control in China’s economic growth, where investment is primarily determined by interest rates available to firms and entrepreneurs. When the central bank regulates the interest rates and makes them below the equilibrium rate, high-level investment activities boost economic growth and introduce new technologies into the economy, which in turn promotes growth in labour productivity. As the current marginal product of capital is much higher than the interest rate, the output growth is much faster than consumption growth and exports become an important part of the economy. To maintain competitiveness of exports over a longer period, it is necessary to keep exchange rates low, which results in large foreign exchange reserves. When the export sector is losing its competitiveness edge due to increased labour costs and exports cannot digest the difference between output growth and consumption plus investment growth, interest rate control may lose its positive impact on economic growth.     

The External Debt Situation in Indonesia: Performance and Prospects

In interviews with bankers, government economists and academic observers, most of them attributed the absence of an Indonesian debt crisis during 1982–84 to the fact that a significant portion of external public debt, an average of 37 percent, was long-term concessionary loans from foreign governments and international agencies. Our analysis challenges this conventional explanation. We show that if Indonesia (1) had paid the same effective interest rate as Mexico, (2) had the same maturity structure as Mexican debt, and (3) had the same export-GNP ratio as Mexico, then its average 1980–82 total debt service-export ratio would have been 84.4% instead of the actual 30.1%. Our decomposition shows that concessional interest rates account for 5.8 percentage points of the gap, maturity structure for 17.7 percentage points and export orientation for 30.8 percentage points.
We have concluded that the major cause for the favorable 1982–84 outcome is competent management of the exchange rate. The absence of protracted exchange rate overvaluation from 1979 onward was fundamental in maintaining a strong nonoil tradeable sector. The nonoil tradeable sector was able to earn enough foreign exchange to service Indonesian debts when the external shock of high interest rates increased debt service payments and the recession in industrialized countries lowered the price of oil. The absence of extended exchange rate overvaluation also kept the external debt down and the maturity structure on the long side by not encouraging capital flight. We ascribe this use of the exchange rate to protect the tradeable sector as much to the existence of an influential political constituency consisting of neoclassical economists, Javanese peasants and Outer Island residents as to balance-of-payments considerations.
We recommend an aggressive exchange rate policy and two sets of supplementary measures to reduce the probability of a debt crisis in the medium run.     

'Don't owe,won't pay!': A critical analysis of the Jubilee SA position on South African government debt

Jubilee 2000 (SA) supports the cancellation of South African national government (and other) debt on the grounds that it is odious debt from the apartheid years. The organisation has called for foreign creditors to cancel the debt voluntarily and has threatened to call for debt repudiation if such cancellation is not forthcoming. However, unlike voluntary debt cancellation, debt repudiation would probably have serious consequences for investment and growth. Furthermore, as most government debt has accumulated after the end of apartheid, and as most is domestic and marketable, the moral argument for repudiation is problematic. Jubilee 2000 (SA) is also calling for the government pension scheme (which owns a large proportion of the domestic government debt) to be restructured. Contributions to the pension fund may be excessive (as argued by Jubilee 2000), but the case is not clear. South Africa should publish a dual set of accounts in line with how other countries report their liabilities so as not to overstate the deficit in the eyes of investors.     

The impact of disinvestment and the debt crisis on the South African economy

The paper considers the economic implications of disinvestment and the debt crisis for the South African economy with the aid of some historical analysis of foreign capital inflows and growth. It considers the changes that have occurred in the structure of foreign liabilities over the last twenty years and it examines the quantitative and qualitative roles of private investment and non‐direct investment over this period. The debt issue is examined within the framework of disinvestment, and the conclusion reached is that the economic problems consequent to a withdrawal of foreign loans pose a far greater threat to the South African economy than the loss of foreign direct investment. We assume that disinvestment is not accompanied by any official trade embargo, and the controversy surrounding the relationship between economic growth and social and political change in South Africa is ignored.     

Fiscal and monetary policy in a monetary union: Credible inflation targets or monetized debt?

Fiscal and Monetary Policy in a Monetary Union: Credible Inflation Targets or Monetized Debt? —The paper examines the interrelationship between fiscal and monetary policy in a two-country monetary union. The worst scenario occurs when an independent central bank sets the nominal interest rate and responds to rising government debt/GDP ratios by monetization. The result is high inflation, high debt/GDP ratios and a large public sector. Government debt and inflation are contained if the governments bear sole responsibility for solvency, but the public sector remains excessively large. The best scenario occurs if the central bank removes the incentive for the governments to engineer surprise inflation by credible inflation targeting.     

The Categorization of Small Open Economies and the Response to Foreign Interest Rate Shocks: Based on Financial Integration and Net External Credit

To analyze precisely effects of foreign interest rate hike shocks, this paper categorizes small open economies into four kinds of types based on the net external credit (or debt) level and the financial integration level. The empirical result shows that responses of macroeconomic variables tend to differ substantially depending on the type of a small open economy. These findings imply that we need to consider the net external credit (or debt) level and the financial integration level of a small open economy when we predict the effect of a foreign interest rate hike shock.     

中国外汇储备积累实证研究

为了深刻理解我国外汇储备增长的原因并找出应对策略,本文用向量自回归方法研究了外汇储备积累的原因和机制。实证结果表明,中国实际利率高于外国、货币贬值、经济增长都是导致外汇储备增加的原因。短期内,实际利差、实际汇率、经济增长是影响外汇储备积累的主要因素;而在长期,开放度是影响外汇储备积累的决定性因素,这意味着国内贸易政策比经济活动对外汇储备积累有着更深层次的影响。其政策含义是:缓解外汇储备剧增对经济活动带来的不利影响,重要的是调整出口导向、吸引外资、结售汇等贸易政策,而非人民币升值。     

The Global Setting and African Economic Growth

This paper reviews the evidence on the importance of the globalsetting for the economic growth of African economies, particularlyin the light of the increasing salience of globalisation. Althoughexport promotion strategies are found to be growth enhancingfor African economies, available evidence suggests that it isthe manufacturing component that really seems to matter. Theglobal-related factors with adverse effects include terms oftrade deterioration, economic instabilities of capital (investment)and imports, high world interest rates, real exchange rate misalignment,diminishing external aid flows into countries with sound policies,large external debt and high export taxes. The World Trade Organisationframework also matters for the growth prospects of African countries.The current time-bound exemptions accorded most African countriesunder the framework are steps in the right direction.     

Forward-looking agents and inflation in an oil-producing country: Evidence from Iran

A monetary model of inflation was estimated on the oil-producing country of Iran for the period 1984:1–2016:4. It was found that expectations are formed rationally and that agents are forward-looking and adjust their behavior based on changes in government expenditure. Consequently, it was found that higher fiscal variables result in lower price levels over the long run. A higher oil price leads to a lower price in the country but to a higher money supply and interest rate over the long run. Furthermore, a higher domestic interest rate results in a higher price level, while the reverse is true for a higher foreign interest rate. Another cause of inflation in Iran is the foreign price level. It was found that over the short run a higher growth of the real government expenditure results in a lower inflation rate in the country but a positive change in the foreign interest rate brings in a higher inflation rate.     

The canadian fiscal problem: The macroeconomic connection

Canada's public sector debt has increased from 5 percent of GDP in 1974 to 64 percent in 1994 on national accounts. The paper provides a summary assessment of the relative contributions of changes in taxation, program spending, interest rates, and economic growth and fluctuations to this explosion of public debt. By far the most important source of debt accumulation has been the anti-inflationary recessions of 1982 and 1990. Higher world interest rates and slower trend productivity growth have been significant, but secondary contributing factors. Lax spending has definitely not been a net source of debt over the period.     

Indonesian Foreign Debt: Headed for A Crisis or Financing Sustainable Growth?

This paper examines the build-up in Indonesia's foreign debt between 1981 and 1993, and explores the potential for a debt crisis during Repelita VI. It concludes that Indonesia is not headed toward a crisis in the immediate future- Borrowed funds have generally financed productive investments, contributing to rapid growth in GDP and exports since the late 1980s. If recent trends continue, debt should ease gradually; if not, the economy could withstand a substantial balance of payments shock, at least for a while. A debt servicing problem, although unlikely, is conceivable by the end of the decade. Short-term debt is growing rapidly, non-oil export growth has slowed, and debt service remains high. Appropriate government actions to reduce the potential for a crisis include further deregulation to support growth in non-oil exports, discouraging implicit government guarantees for private sector projects, and reducing government exposure to yen-denominated debt.