Public Debt, Interest Rates, and Negative Shocks

Richard Evans

AEA Papers and Proceedings, 2020, vol. 110, 137-40

Abstract: Debt-to-GDP ratios across developed economies are at historically high levels, and government borrowing rates remain persistently low. Blanchard (2019) provides evidence that the fiscal costs and welfare costs are low of increased government debt in low interest rate environments. This paper attempts to replicate Blanchard's main results and tests their robustness to key assumptions about risk in the model. This study finds that Blanchard's stated approach results in no long-run average welfare gains from increased government debt and that those welfare losses are exacerbated if some strong risk-reducing assumptions are relaxed to more realistic values.

JEL-codes: E23 E43 H63 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1257/pandp.20201101

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