Public Debt and R - G at Risk

43 Pages Posted: 30 Oct 2020

See all articles by Weicheng Lian

Weicheng Lian

International Monetary Fund (IMF)

Andrea Presbitero

Johns Hopkins University

Ursula Wiriadinata

Chicago Booth

Date Written: July 2020


As interest rate-growth differentials (r-g) turned negative in many countries, governments consider pursuing fiscal expansion and the potential risks involved. Using a large sample of advanced and emerging economies, our analysis suggests that high public debts can lead to adverse future r-g dynamics. Specifically, 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, and (iii) a more right-skewed r-g distribution, that implies higher down-side risks. Furthermore, high-debt countries experience larger increases in interest rates in response to (iv) an unexpected decline in domestic output and (v) an increase of global volatility. Results are stronger when public debts are denominated in foreign currencies.

Suggested Citation

Lian, Weicheng and Presbitero, Andrea and Wiriadinata, Ursula, Public Debt and R - G at Risk (July 2020). IMF Working Paper No. 20/137, Available at SSRN:

Weicheng Lian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Andrea Presbitero

Johns Hopkins University ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

HOME PAGE: http://

Ursula Wiriadinata

Chicago Booth ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
3127149831 (Phone)

HOME PAGE: http://

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