## Public Debt and r - g at Risk

_IMF Working Papers, July 24, 2020_

## Source details

**Canonical URL:** [Public Debt and r - g at Risk](https://www.imf.org/en/publications/wp/issues/2020/07/24/public-debt-and-r-g-at-risk-49586)

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## Bibliographic details
- Authors: Weicheng Lian, Andrea F Presbitero, Ursula Wiriadinata
- Published: July 24, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513550794.001

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### Key findings on r - g dynamics and public debt
- High public debts can lead to adverse future r - g dynamics.
- Countries with higher initial public debt experience:
  - (i) a shorter duration of negative r - g episodes and a higher probability of reversal.
  - (ii) higher average r - g.
  - (iii) a more right-skewed r - g distribution, implying higher down-side risks.
- High-debt countries experience larger increases in interest rates in response to:
  - (iv) an unexpected decline in domestic output.
  - (v) an increase of global volatility.

### Sample and scope
- Analysis uses a large sample of advanced and emerging economies.
- Results are stronger when public debts are denominated in foreign currencies.

### Thematic implications for fiscal policy and risk assessment
- The combination of elevated public debt and negative r - g episodes does not guarantee persistent low financing costs; high debt can increase the likelihood and scale of adverse r - g reversals.
- Currency denomination of public debt matters: foreign-currency debt amplifies the sensitivity of interest rates to domestic output shocks and global volatility.
- Fiscal expansion decisions should account for:
  - higher average r - g and greater downside tail risk in high-debt settings,
  - the elevated interest-rate response to domestic and global shocks, especially with foreign-currency debt exposure.

*Weicheng Lian, Andrea F Presbitero, Ursula Wiriadinata. July 24, 2020.*

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## Content in this bundle

- **3.1    Public Debt, Negativer-gSpells, and Reversals**
  - [3.1    Public Debt, Negativer-gSpells, and Reversals (Markdown version)](/-/media/files/publications/wp/2020/english/wpiea2020137-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [3.1    Public Debt, Negativer-gSpells, and Reversals (PDF)](/-/media/files/publications/wp/2020/english/wpiea2020137-print-pdf.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2020/07/24/public-debt-and-r-g-at-risk-49586_