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Sustainable debt and deficits in Emerging Markets

  • Ashima Goyal

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

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  1. 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.).
  2. Masao Ogaki & Jonathan David Ostry & Carmen Reinhart, 1995. "Saving Behavior in Low and Middle-Income Developing Countries; A Comparison," IMF Working Papers 95/3, International Monetary Fund.
  3. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Ashima Goyal, 2008. "The Natural Interest Rate in Emerging Markets," Working Papers id:1675, eSocialSciences.
  7. 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.
  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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