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Debt spikes and stock flow adjustments: Emerging economies in perspective

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  • Jaramillo, Laura
  • Mulas-Granados, Carlos
  • Kimani, Elijah

Abstract

What explains public debt spikes? Are debt spikes different in emerging economies than in advanced countries? Analysis of 179 episodes from 1945 to 2014 shows that debt spikes are not rare events and their probability increases with time. Large debt spikes in advanced and emerging countries are neither driven by high primary deficits nor by output declines but instead by sizable stock-flow adjustments (SFAs). Higher SFA accumulation is associated with a higher probability of suffering non-declining debt paths in the aftermath of public debt spikes. Importantly, despite their sizeable impact on debt accumulation, SFAs have been largely ignored in debt sustainability analyses.

Suggested Citation

  • Jaramillo, Laura & Mulas-Granados, Carlos & Kimani, Elijah, 2017. "Debt spikes and stock flow adjustments: Emerging economies in perspective," Journal of Economics and Business, Elsevier, vol. 94(C), pages 1-14.
    • Handle: RePEc:eee:jebusi:v:94:y:2017:i:c:p:1-14
    DOI: 10.1016/j.jeconbus.2017.08.003
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    2. Casalin, Fabrizio & Cerniglia, Floriana & Dia, Enzo, 2023. "Stock-flow adjustments, public debt management and interest costs," Economic Modelling, Elsevier, vol. 129(C).
    3. Fabrizio Casalin & Floriana Cerniglia & Enzo Dia, 2021. "Stock-flow adjustments and interest costs in public debt dynamics," CRANEC - Working Papers del Centro di Ricerche in Analisi economica e sviluppo economico internazionale crn2102, Università Cattolica del Sacro Cuore, Centro di Ricerche in Analisi economica e sviluppo economico internazionale (CRANEC).
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    5. Afonso, António & Jalles, João Tovar, 2020. "Stock flow adjustments in sovereign debt dynamics: The role of fiscal frameworks," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 1-16.
    6. Chakraborty, Pinaki & Bhadra, Kausik K., 2024. "State Finances in India: Managing Fiscal Risks and Sustaining Recovery," Working Papers 24/413, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Public debt; Debt spikes; Stock flow adjustment; Debt forecasting;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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