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  5. Public Debt, Interest Rates, and Negative Shocks

AEA Papers and Proceedings

ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)

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Public Debt, Interest Rates, and Negative Shocks

  • Richard W. Evans
AEA Papers and Proceedings
vol. 110, May 2020
(pp. 137–40)
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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.

Citation

Evans, Richard W. 2020. "Public Debt, Interest Rates, and Negative Shocks." AEA Papers and Proceedings, 110: 137–40. DOI: 10.1257/pandp.20201101

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • H63 National Debt; Debt Management; Sovereign Debt
  • E23 Macroeconomics: Production
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • H63 National Debt; Debt Management; Sovereign Debt