Working Paper: CEPR ID: DP17559
Authors: Rui Esteves; Barry Eichengreen
Abstract: The Global Financial Crisis and the COVID-19 pandemic bequeathed large increases in global public debt. At some point governments may seek to bring down these elevated debt-to-GDP ratios, including by inflating (by raising nominal GDP). We assemble a panel of debt consolidation episodes spanning 220 years and 183 nations. The evidence confirms that moderate inflation has been instrumental in facilitating large consolidations in the past. In fact, the frequency of successful debt consolidations was lower in periods of relatively high inflation. On the contrary, the largest concentration of debt consolidations coincided with periods of relatively low and stable inflation in the context of credible monetary policies and sound fiscal policies.
Keywords: Inflation; Debt Consolidation; Historical Perspective
JEL Codes: H12; H62; H63; N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| moderate inflation (E31) | debt consolidation (G51) |
| high inflation (E31) | successful debt consolidation (G51) |
| low and stable inflation (E31) | significant debt consolidations (F34) |
| rising interest payments (E43) | negation of benefits from inflation (E31) |
| inflation contributes positively to debt reduction (E31) | conditions under which inflation aids in debt consolidation (E31) |