## Inflation and Public Debt Reversals in Advanced Economies

_IMF Working Papers, December 27, 2019_

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**Canonical URL:** [Inflation and Public Debt Reversals in Advanced Economies](https://www.imf.org/en/publications/wp/issues/2019/12/27/inflation-and-public-debt-reversals-in-advanced-economies-48855)

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## Bibliographic details
- Authors: Ichiro Fukunaga, Takuji Komatsuzaki, Hideaki Matsuoka
- Published: December 27, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513521596.001

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### Summary and key findings
- Scope: Quantitatively assesses effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies.
- Main quantitative result: A 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points.
- Debt maturity effect: The impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant.
- Overall implication: Modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.

### Methodology
- Approaches used:
  - Simulations based on the debt dynamics equation.
  - Estimations of impulse responses by local projections.

### Policy implications and interpretation
- Modest inflation episodes are unlikely to produce large reductions in public debt-to-GDP ratios across advanced economies.
- Even with accompanying financial repression, debt relief from inflation is likely to be marginal in many advanced economies.
- Considerations for policymakers:
  - Debt maturity structure matters: longer maturity tends to increase and prolong the debt-reducing effect of inflation, though the difference is not statistically significant relative to the benchmark.
  - Reliance on inflation as a debt-reduction tool should be tempered by the limited quantitative effect observed.

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_Source: https://www.imf.org/en/publications/wp/issues/2019/12/27/inflation-and-public-debt-reversals-in-advanced-economies-48855_