The Relationship between Debt Levels and Growth

Abbas, S. Ali; Arnold, Nathaniel; Dacheva, Petra; Broeck, Mark De; Forni, Lorenzo; Guerguil, Martine; Versailles, Bruno

doi:10.7551/mitpress/9780262027182.003.0009

Cited by 3 publications

(2 citation statements)

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“…We also review the terms of EU financial assistance programmes to three non-Eurozone members of the European Union (Hungary, Latvia and Romania). We refer the reader to Table A.4 in Appendix A and the Online Appendix for details of each program, to Corsetti, Erce and Uy (2020) for a description of the development of a euro area crisis resolution framework, and to Abbas, Arnold, Dacheva, De Broeck, Forni, Guerguil and Versailles (2014) for further discussion on the causes and development of the euro area crisis..…”

Section: Implicit Transfers During the Euro Area Crisismentioning

confidence: 99%

The Economics of Sovereign Debt, Bailouts, and the Eurozone Crisis

Gourinchas

2023

IMF Working Papers

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Despite a formal 'no-bailout clause,' we estimate significant net present value transfers from the European Union to Cyprus, Greece, Ireland, Portugal, and Spain, ranging from roughly 0.5% (Ireland) to a whopping 43% (Greece) of 2010 output during the Eurozone crisis. We propose a model to analyze and understand bailouts in a monetary union, and the large observed differences across countries. We characterize bailout size and likelihood as a function of the economic fundamentals (economic activity, debt-to-gdp ratio, default costs). Our model embeds a 'Southern view' of the crisis (transfers did not help) and a 'Northern view' (transfers weaken fiscal discipline). While a stronger no-bailout commitment reduces risk-shifting, it may not be optimal from the perspective of the creditor country, even ex-ante, if it increases the risk of immediate insolvency for high debt countries. Hence, the model provides a potential justification for the often decried policy of 'kicking the can down the road.' Mapping the model to the estimated transfers, we find that the main purpose of the outsized Greek bailout was to prevent an exit from the eurozone and possible contagion. Bailouts to avoid sovereign default were comparatively modest.

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Section: Implicit Transfers During the Euro Area Crisismentioning

confidence: 99%

The Economics of Sovereign Debt, Bailouts, and the Eurozone Crisis

Gourinchas

2023

IMF Working Papers

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“…the share of debt that is held by external creditors). General government gross debt data are obtained from the WEO, while debt composition data are taken from the OECD and Abbas, Arnold, DeBroeck, Forni, and Guerguil ().…”

Section: Sensitivity Analysismentioning

confidence: 99%

Consumption, asset wealth, equity premium, term spread, and flight to quality

Costantini

Sousa

2019

Euro Fin Management

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We link transitory deviations of consumption from its equilibrium relationship with aggregate wealth and labor income to equity returns on the one hand, and to two characteristics of bond investors-the premium demanded to hold long-term assets, and "flight to quality" behavior-on the other hand. Using a panel of 10 euro area countries over the period 1984Q1-2017Q4, we show that a rise in the consumption-wealth ratio predicts both higher equity returns and the future term spread, while a fall in the consumption-wealth ratio explains a large fraction of the rise in the spread between the "risky" and the "safe-haven" bond.

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Financial stress and sovereign debt composition

Agnello¹,

Castro

Jalles

et al. 2015

Applied Economics Letters

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Using a panel of 13 advanced economies for the period 1980–2012, we find that periods of impaired financial intermediation mainly accrue to maturity mismatches in sovereign debt. Thus, a higher (lower) share of short-term (medium and long-term) debt leads to an increase in the financial stress index. From a policy perspective, our work suggests that debt management policies translated into longer average maturities of sovereign debt not only reduce the expected debt servicing cost, but also mitigate strains in the financial sector

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The Relationship between Debt Levels and Growth

Cited by 3 publications

References 0 publications

The Economics of Sovereign Debt, Bailouts, and the Eurozone Crisis

The Economics of Sovereign Debt, Bailouts, and the Eurozone Crisis

Consumption, asset wealth, equity premium, term spread, and flight to quality

Financial stress and sovereign debt composition

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