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Explaining Movements in Government Debt

Author

Listed:
  • Tatiana Kirsanova
  • Eric M. Leeper
  • Campbell B. Leith
  • Ding Liu

Abstract

Standard New Keynesian models with time-consistent policy predict minimal debt responses to conventional shocks, as a debt stabilization bias dominates tax-smoothing motives. We show that two mechanisms can generate debt movements of the magnitude observed in the data: increases in policymaker myopia and declines in real interest rates, such as during flight-to-safety episodes. Other potential drivers—changes in markups, debt maturity, government transfers, or large recessions—cannot account for such fluctuations.

Suggested Citation

  • Tatiana Kirsanova & Eric M. Leeper & Campbell B. Leith & Ding Liu, 2026. "Explaining Movements in Government Debt," NBER Working Papers 35222, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35222
    Note: EFG
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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