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Inflation-linked public debt in emerging economies

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  • Gomez-Gonzalez, Patricia

Abstract

This study reports a set of stylized facts about inflation-linked (IL) public debt in emerging economies. On average, emerging economies issue 23% of their local currency (LC) public debt linked to inflation. IL debt issuance is countercyclical, increases in periods of nominal exchange rate depreciations, and substitutes foreign currency (FC) and non-indexed local currency debt. A two-sector small-open economy model of public debt composition can deliver the business-cycle properties of IL debt and shows that, during crises, amid nominal exchange rate depreciations, IL debt becomes cheaper to issue. The study finds evidence of IL rates decreasing in about half of the most recent crises in emerging economies. Finally, the study compares IL rates to FC and LC rates and concludes that, for some countries, IL rates are below LC rates, even after accounting for expected inflation.

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  • Gomez-Gonzalez, Patricia, 2019. "Inflation-linked public debt in emerging economies," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 313-334.
    • Handle: RePEc:eee:jimfin:v:93:y:2019:i:c:p:313-334
    DOI: 10.1016/j.jimonfin.2019.02.008
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    Cited by:

    1. Bayale, Nimonka & Tchagnao, Abdou-Fataou & Chavula, Hopestone Kayiska, 2020. "More elections, more burden? On the relationship between elections and public debt in Africa," MPRA Paper 101744, University Library of Munich, Germany.
    2. Monica Laura Zlati & Valentin Marian Antohi & Romeo Victor Ionescu, 2019. "Approaches on the Vulnerability of Romania's Economy in Terms of Budget Deficit and Inflation in a Continuous Form," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 128-137.
    3. Valencia, Oscar & Rodriguez, Luis Alberto & Siachoque, Juan Pablo, 2023. "Fiscal Rules and Optimal Currency Composition of Sovereign Debt in Emerging Economies," IDB Publications (Working Papers) 12682, Inter-American Development Bank.
    4. Patricia Gomez-Gonzalez, 2021. "Drivers of inflation-linked public debt: an empirical investigation," International Economics and Economic Policy, Springer, vol. 18(1), pages 223-244, February.

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    More about this item

    Keywords

    Public debt; Inflation-linked debt; Foreign currency debt;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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