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Journal Article
COVID-19: Fiscal Implications and Financial Stability in Developing Countries
Grittayaphong, Praew; Restrepo-Echavarria, Paulina (2023-07-14)
The COVID-19 pandemic has been unlike any other crisis that we have experienced in that it hit all economies in the world at the same time, compromising the risk-sharing ability of nations. At the onset of the pandemic, the World Bank (WB) and the International Monetary Fund (IMF) jointly pledged 1.16 trillion U.S. dollars to help emerging economies deal with COVID-19. Would this amount have been enough to preserve financial stability in a worst case scenario, and what were the fiscal implications of the pandemic? In this article we aim to answer these questions by documenting the size of the ...
Review , Volume 105 , Issue 3 , Pages 137-149

Newsletter
How Much Debt Does the U.S. Government Owe?
Wright, Mark L. J.; Friedman, Rebecca (2016)
The U.S. government is often referred to as the world?s biggest debtor. But how much debt does it owe? A visit to the website of the U.S. Department of the Treasury yields a bewildering array of different measures of U.S. federal government debt. Although the gross debt of the U.S. federal government is approaching $18 trillion, the debt that is subject to the debt limit is a few billion dollars smaller, while debt in the hands of the public is less than $13 trillion.
Chicago Fed Letter

Journal Article
Assessing the Costs of Rolling Over Government Debt
Kozlowski, Julian; Jordan-Wood, Samuel (2023-06-02)
The US government has $21.4 trillion in outstanding Treasury debt in bills, notes, and bonds. Given the federal funds rate is up 4-5% over the past year, how expensive will it be to roll over maturing Treasury debt at these higher rates?
Economic Synopses , Issue 13 , Pages 4 pages

Working Paper
Optimal Public Debt with Life Cycle Motives
Sager, Erick; Peterman, William B. (2018-04-20)
Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk. Even though individual savings behavior is a crucial determinant of the optimality of public debt, this class of economies abstracts from empirically observed life cycle savings patterns. Thus, this paper studies how incorporating a life cycle affects optimal public debt. We find that while the ...
Finance and Economics Discussion Series , Paper 2018-028

Report
Pareto Improving Fiscal and Monetary Policies: Samuelson in the New Keynesian Model
Aguiar, Mark; Amador, Manuel; Arellano, Cristina (2023-06-16)
This paper explores the positive and normative consequences of government bond issuances in a New Keynesian model with heterogeneous agents, focusing on how the stock of government bonds affects the cross-sectional allocation of resources in the spirit of Samuelson (1958). We characterize the Pareto optimal levels of government bonds and the associated monetary policy adjustments that should accompany Pareto-improving bond issuances. The paper introduces a simple phase diagram to analyze the global equilibrium dynamics of inflation, interest rates, and labor earnings in response to changes in ...
Staff Report , Paper 646

Discussion Paper
The Rapidly Changing Nature of Japan’s Public Debt
Wheeler, Harry; Klitgaard, Thomas (2016-06-22)
Japan’s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan’s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance ...
Liberty Street Economics , Paper 20160622

Journal Article
The Economic Impact of COVID-19 around the World
Martin, Fernando M.; Sanchez, Juan M.; Wilkinson, Olivia (2023-04-10)
This article provides an account of the worldwide economic impact of the COVID-19 shock. In 2020, it severely impacted output growth and employment, particularly in middle-income countries. Governments responded primarily by increasing expenditure, supported by an expansion of the supply of money and debt. These policies did not put upward pressure on prices until 2021. International trade was severely disrupted across all regions in 2020 but subsequently recovered. For 2021, we find that the adverse effects of the COVID-19 shock on output and prices were significant and persistent, ...
Review , Volume 105 , Issue 2 , Pages 74-88

Working Paper
Government Debt, Limited Foresight, and Longer-term Interest Rates
Gust, Christopher J.; Skaperdas, Arsenios (2024-05-03)
We study the relationship between government debt and interest rates in an environment where financial market participants have limited foresight about the future path of government debt. We show that limited foresight substantially attenuates estimates of the effect of government debt on longer-term yields relative to the benchmark of rational expectations often used in empirical analysis.
Finance and Economics Discussion Series , Paper 2024-027

Working Paper
Is Inflation Default? The Role of Information in Debt Crises
Bassetto, Marco; Galli, Carlo (2017-03-17)
We consider a two-period Bayesian trading game where in each period informed agents decide whether to buy an asset ("government debt") after observing an idiosyncratic signal about the prospects of default. While second-period buyers only need to forecast default, first-period buyers pass the asset to the new agents in the secondary market, and thus need to form beliefs about the price that will prevail at that stage. We provide conditions such that coarser information in the hands of second-period agents makes the price of debt more resilient to bad shocks not only in the last period, but ...
Working Paper Series , Paper WP-2017-6

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