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A Decade of Debt

In: Capital Mobility and Monetary Policy

Author

Listed:
  • Carmen M. Reinhart

    (Harvard University)

  • Kenneth S. Rogoff

    (Harvard University)

Abstract

This paper presents evidence that public debts in the advanced economies have surged in recent years to levels not recorded since the end of World War II, surpassing the heights reached during the First World War and the Great Depression. At the same time, private debt levels, particularly those of financial institutions and households, are in uncharted territory and are (in varying degrees) a contingent liability of the public sector in many countries. Historically, high leverage episodes have been associated with slower economic growth and a higher incidence of default or, more generally, restructuring of public and private debts. A more subtle form of debt restructuring in the guise of "financial repression" (which had its heyday during the tightly regulated Bretton Woods system) also importantly facilitated sharper and more rapid debt reduction than would have otherwise been the case from the late 1940s to the 1970s. It is conjectured here that the pressing needs of governments to reduce debt rollover risks and curb rising interest expenditures in light of the substantial debt overhang (combined with the widespread "official aversion" to explicit restructuring) are leading to a revival of financial repression--including more directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, and tighter regulation on cross-border capital movements.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "A Decade of Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.),Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 4, pages 97-135, Central Bank of Chile.
  • Handle: RePEc:chb:bcchsb:v18c04pp97-135
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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