Debt and Financial Crises

Abstract

The Centre for Applied Macroeconomic Analysis in the Crawford School of Public Policy has been established to build strong links between professional macroeconomists. It provides a forum for quality macroeconomic research and discussion of policy issues between academia, government and the private sector. The Crawford School of Public Policy is the Australian National University's public policy school, serving and influencing Australia, Asia and the Pacific through advanced policy research, graduate and executive education, and policy impact.

A Mountain of Debt: Navigating the Legacy of the Pandemic

“…A similarly close look at private debt booms may be warranted. After all, the lethal combination of private and government debt booms has been shown to be particularly likely to be associated with financial crises (Koh et al 2020).…”

Can this Time be Different? Policy Options in Times of Rising Debt

“…These synchronized waves have typically ended in widespread financial crises. At other times, rapid debt buildups have been country-specific, but half of these country-specific debt buildups have also been associated with crises (Koh et al 2020).…”

“…Previous work has mostly focused on the consequences of debt accumulation for advanced economies. Second, the paper offers a compilation of salient lessons about the consequences of debt accumulation building on earlier research on global and national episodes of debt accumulation (Koh et al 2020;. Third, the paper offers a comprehensive set of policy prescriptions that can help lower the likelihood of debtrelated financial crises and mitigate their effects when they materialize.…”

“…Spurts of debt buildup are common in EMDEs. Since 1970, there have been about 520 national episodes of rapid debt accumulation in 100 EMDEs when debt rose by more than one standard deviation above its rolling trend (Koh et al 2020). In 45 and 38 EMDEs, respectively, such government debt accumulation and private debt accumulation episodes were still underway in 2018.…”

“…As in earlier waves, vulnerabilities have mounted since the global financial crisis, with a shift to riskier debt instruments, including greater reliance on financial markets and non-Paris club bilateral lenders (particularly in LICs; Essl et al 2019;Ruch 2019). About half of the national episodes of rapid debt accumulation were associated with a financial crisis, with sizeable economic costs in terms of permanent output and investment losses (Koh et al 2020). Crises associated with rapid government debt buildups tended to feature larger output losses than crises associated with rapid private debt buildups.…”