Private and Public Debt: Are Emerging Markets at Risk?

IMF Working Papers, March 22, 2017

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Private and Public Debt: Are Emerging Markets at Risk?

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Bibliographic details

• Authors: Marco Bernardini, Lorenzo Forni
• Published: March 22, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475588170.001

Overview

• Authors: Marco Bernardini, Lorenzo Forni
• Publication date: March 22, 2017
• Series: Working Paper No. 2017/061
• Issue: 061

Key findings

• Using a dataset covering a large sample of emerging economies (EMEs), the study examines the relationship between debt and economic performance in bad times.
• Private debt buildups exacerbate the duration and intensity of recessions in advanced economies (AEs); this effect is documented to be very pronounced in EMEs as well.
• Rapid public debt buildups are unlikely to be the primary trigger of financial crises.
• In EMEs, rapid public debt buildups are associated with deeper and longer recessions than in AEs.
• Part of the difference in recession depth and duration between EMEs and AEs is explained by a less supportive fiscal policy in EMEs during crises.

Analysis and interpretation

• Comparative effect of private debt:
  • The amplification of recession duration and intensity associated with private debt accumulation, previously documented for AEs, is observed and stronger in EMEs.
• Role of public debt:
  • Rapid increases in public debt are not identified as the primary cause of financial crises.
  • Nonetheless, when rapid public debt buildups occur in EMEs, they correlate with more severe and prolonged downturns relative to AEs.
• Fiscal policy responsiveness:
  • A contributing factor to the worse outcomes in EMEs is a less supportive fiscal policy response during crises compared with AEs.

Subject classification and keywords

• Subject: Banking crises, Financial crises, Fiscal policy, National accounts, Private debt, Public debt
• Keywords: accumulation matter, banking crises, debt accumulation, debt buildup, debt-recession cycle, emerging markets, financial crisis, Global, government spending, Private debt, private-public debt, recessions, WP

Content in this bundle

• Private and Public Debt: Are Emerging Markets at Risk?, WP/17/61, March 2017
  • Private and Public Debt: Are Emerging Markets at Risk?, WP/17/61, March 2017 (Markdown version)
  • Private and Public Debt: Are Emerging Markets at Risk?, WP/17/61, March 2017 (PDF)