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Sustainable debt and deficits in Emerging Markets

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  • Ashima Goyal

Abstract

Rising deficits and high debt ratios characterised currency crises in countries with low private savings rates and low population densities. But in emerging markets with large population transferring to more productive employment, sustainable debts and deficits may be higher. Debt ratios fall with growth rates. Higher private savings can compensate for government dissaving. An optimising model of such an economy with dualistic labour markets and two types of consumers demonstrates these features but also shows debt ratios tend to rise in high growth phases. Policy conclusions for fiscal consolidation and coordination with monetary policy are derived in the Indian context.

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Bibliographic Info

Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Trade and Global Markets.

Volume (Year): 4 (2011)
Issue (Month): 2 ()
Pages: 113-136

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Handle: RePEc:ids:ijtrgm:v:4:y:2011:i:2:p:113-136

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Web page: http://www.inderscience.com/browse/index.php?journalID=130

Related research

Keywords: deficits; sustainability; monetary policies; fiscal policies; emerging markets; sustainable debt; debt ratios; currency crises; private savings; population densities; large populations; productive employment; growth rates; government dissaving; dualistic labour markets; consumers; high growth; fiscal consolidation; fiscal coordination; India; globalisation; trade; global markets; global economy; policy analysis.;

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References

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  1. Annicchiarico Barbara & Marini Giancarlo & Piergallini Alessandro, 2008. "Monetary Policy and Fiscal Rules," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-42, February.
  2. J. Galí & D. López-Salido & J. Vallés, 2003. "Understanding the effects of government spending on consumption," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  3. Ashima Goyal, 2008. "The Natural Interest Rate in Emerging Markets," Working Papers id:1675, eSocialSciences.
  4. Troy Davig & Eric M. Leeper, 2009. "Monetary-fiscal policy interactions and fiscal stimulus," Research Working Paper RWP 09-12, Federal Reserve Bank of Kansas City.
  5. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  6. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach," NBER Working Papers 8604, National Bureau of Economic Research, Inc.
  7. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
  8. Ashima Goyal, 2008. "The Structure of Inflation, Information and Labour Markets - Implications for monetary policy," Macroeconomics Working Papers 22378, East Asian Bureau of Economic Research.
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Citations

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Cited by:
  1. Ashima Goyal, 2007. "A General equilibrium open economy model for emerging markets: Monetary policy with a dualistic labor market," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2007-016, Indira Gandhi Institute of Development Research, Mumbai, India.
  2. Ashima Goyal, 2010. "Exchange Rate Regimes and Macroeconomic Performance in South Asia," Macroeconomics Working Papers 22779, East Asian Bureau of Economic Research.
  3. Goyal, Ashima, 2012. "Propagation Mechanisms in Inflation: Governance as key," MPRA Paper 46360, University Library of Munich, Germany.
  4. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
  5. Ashima Goyal & Shruti Tripathi, 2012. "Stability and policy rules in emerging markets," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-004, Indira Gandhi Institute of Development Research, Mumbai, India.

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