Working Paper: NBER ID: w3532
Authors: Hanswerner Sinn
Abstract: This paper advances the hypothesis that the world debt crisis was mainly induced by the dramatic rise of US interest rates in the first half of the eighties. It sees this rise in interest rates primarily as a result of a tight US monetary policy and excessively large investment incentives provided by the 1981 Us tax reform. A welfare analysis shows that the policies could have increased the US advantage from lending its capital abroad, had they been more moderately designed. The actual policies, however, were by far too strong to produce this result.
Keywords: international debt crisis; U.S. economic policy; interest rates; capital flows
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. monetary policy (E52) | U.S. interest rates (E43) |
| U.S. interest rates (E43) | international debt crisis (F34) |
| U.S. monetary policy (E52) | international debt crisis (F34) |
| 1981 U.S. tax reform (H26) | U.S. interest rates (E43) |
| U.S. interest rates (E43) | capital availability for LDCs (O16) |
| U.S. monetary policy (E52) | capital availability for LDCs (O16) |
| 1981 U.S. tax reform (H26) | capital availability for LDCs (O16) |