Measuring the erosion of debt

Arthur Shipman ()

MPRA Paper from University Library of Munich, Germany

Abstract: The calculation used for the inflation-adjustment of debt often produces incorrect results. With Debt and GDP adjusted by the same calculation and for the same inflation, the Debt/GDP ratio after adjustment must be equal to the ratio before adjustment. A graph comparing the ratio of nominals to the ratio of reals would show them to be identical. Such a graph will show no erosion of debt. But this is absurd. Instead, let each year's addition to debt be adjusted for inflation separately. Then the ratio of reals will run higher than the ratio of nominals, and will react to changes in inflation. It is a simple matter, then, to measure the erosion of debt.

Keywords: debt; inflation; erosion (search for similar items in EconPapers)
JEL-codes: C00 C65 (search for similar items in EconPapers)
Date: 2012-08
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