Interest rate-growth differential and government debt dynamics

Cristina Checherita-Westphal
Authors registered in the RePEc Author Service: Cristina Checherita Westphal

Economic Bulletin Boxes, 2019, vol. 2

Abstract: The difference between the average interest rate that governments pay on their debt and the nominal growth rate of the economy (i-g) is a key variable for debt dynamics and sovereign sustainability analysis. Recently, i-g has turned negative in most advanced economies, including euro area sovereigns. Empirically, the relevant interest rate-growth differential for public debt dynamics above has been positive for advanced mature economies over longer periods. In particular, i-g can quickly reverse in crisis times, especially for countries with high debt burdens and/or not perceived by markets as safe havens. Overall, In the euro area, the current low interest rate-growth differentials on government debt should not be taken as an incentive for higher debt levels, especially where fiscal space is constrained. JEL Classification: H68, E62, E4

Keywords: Debt; deficits; interest rate-growth differential (search for similar items in EconPapers)
Date: 2019-03
Note: 1790315
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Citations: View citations in EconPapers (5)

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