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Sustainable debt and deficits in emerging markets

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  • Goyal, Ashima

Abstract

Rising deficits and high debt ratios characterized 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 optimizing 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.

Suggested Citation

  • Goyal, Ashima, 2010. "Sustainable debt and deficits in emerging markets," MPRA Paper 40100, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40100
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    References listed on IDEAS

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    1. Davig, Troy & Leeper, Eric M., 2011. "Monetary-fiscal policy interactions and fiscal stimulus," European Economic Review, Elsevier, vol. 55(2), pages 211-227, February.
    2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    3. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    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. Ashima Goyal, 2009. "The Natural Interest Rate In Emerging Markets," World Scientific Book Chapters,in: New And Enduring Themes In Development Economics, chapter 15, pages 333-368 World Scientific Publishing Co. Pte. Ltd..
    6. 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.
    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. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    9. Ashima Goyal, 2008. "The Structure of inflation, information and labour markets: Implications for monetary policy," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2008-010, Indira Gandhi Institute of Development Research, Mumbai, India.
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    Cited by:

    1. Goyal, Ashima, 2011. "A general equilibrium open economy model for emerging markets: Monetary policy with a dualistic labor market," Economic Modelling, Elsevier, vol. 28(3), pages 1392-1404, May.
    2. Ashima Goyal, 2010. "Exchange Rate Regimes and Macroeconomic Performance in South Asia," Macroeconomics Working Papers 22779, East Asian Bureau of Economic Research.
    3. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
    4. 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.
    5. Goyal, Ashima, 2012. "Propagation Mechanisms in Inflation: Governance as key," MPRA Paper 46360, University Library of Munich, Germany.

    More about this item

    Keywords

    Deficits; Debt; Sustainability; Monetary-Fiscal Policy; Emerging Markets;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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