The Blind Side of Public Debt Spikes

Author/Editor:

Laura Jaramillo ; Carlos Mulas-Granados ; Elijah Kimani

Publication Date:

October 14, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

What explains public debt spikes since the end of WWII? To answer this question, this paper identifies 179 debt spike episodes from 1945 to 2014 across advanced and developing countries. We find that debt spikes are not rare events and their probability increases with time. We then show that large public debt spikes are neither driven by high primary deficits nor by output declines but instead by sizable stock-flow adjustments (SFAs). We also find that SFAs are poorly forecasted, which can affect debt sustainability analyses, and are associated with a higher probability of suffering non-declining debt paths in the aftermath of public debt spikes.

Series:

Working Paper No. 16/202

Subject:

Cross country analysis Developed countries Developing countries Econometric models Economic forecasting European Union Public debt Regression analysis Time series

English

Publication Date:

October 14, 2016

ISBN/ISSN:

9781475545043/1018-5941

Stock No:

WPIEA2016202

Format:

Paper

Pages:

32

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