The Blind Side of Public Debt Spikes

IMF Working Papers, October 14, 2016

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The Blind Side of Public Debt Spikes

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Bibliographic details

• Authors: Laura Jaramillo, Carlos Mulas-Granados, Elijah Kimani
• Published: October 14, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475545043.001

Overview and Research Question

• What explains public debt spikes since the end of WWII?
• The paper identifies 179 debt spike episodes from 1945 to 2014 across advanced and developing countries.
• Main finding: large public debt spikes are neither driven by high primary deficits nor by output declines but instead by sizable stock-flow adjustments (SFAs).

Key Findings

• Identified episodes: 179 debt spike episodes from 1945 to 2014.
• Frequency and trend:
  • Debt spikes are not rare events.
  • Their probability increases with time.
• Drivers of large debt spikes:
  • Not primarily high primary deficits.
  • Not primarily output declines.
  • Predominantly sizable stock-flow adjustments (SFAs).
• Forecasting and consequences:
  • SFAs are poorly forecasted, which can affect debt sustainability analyses.
  • SFAs are associated with a higher probability of suffering non-declining debt paths in the aftermath of public debt spikes.

Implications for Debt Sustainability Analysis and Management

• Debt sustainability analyses that underweight or misforecast SFAs may understate the likelihood and persistence of elevated debt paths.
• The prominence of SFAs implies a need to incorporate stock-flow adjustment uncertainty into debt projections and stress testing.
• The association between SFAs and non-declining post-spike debt trajectories suggests monitoring and contingency planning for balance-sheet events and other SFA sources.

Publication and Metadata

• Authors: Laura Jaramillo, Carlos Mulas-Granados, Elijah Kimani
• Date: October 14, 2016
• Publication series: IMF Working Papers
• Pages: 32
• Volume: 2016
• Issue: 202
• Series title: Working Paper No. 2016/202
• DOI: https://doi.org/10.5089/9781475545043.001
• Stock No: WPIEA2016202
• ISBN: 9781475545043
• ISSN: 1018-5941
• Subjects: Contingent liabilities, Debt sustainability analysis, External debt, Government debt management, Inflation, Prices, Public debt, Public financial management (PFM)
• Keywords: Contingent liabilities, debt accumulation, debt decomposition analysis, debt decrease, debt forecast, Debt Forecasting, debt spike, Debt Spikes, Debt sustainability analysis, General government debt, Global, Government debt management, Inflation, path syndrome, Public Debt, SFA, SFA component, spike episode, Stock Flow Adjsutment, WP

Source: "The Blind Side of Public Debt Spikes", IMF Working Paper, Laura Jaramillo, Carlos Mulas-Granados, Elijah Kimani, October 14, 2016.

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