View by Day

Leopold Zessner-Spitzenberg, Ph.D.

Vienna University of Technology, Austria

Join online: https://call.lifesizecloud.com/20940708 (Passcode: 6371)

Authors: Leopold Zessner-Spitzenberg and Martin Wolf

Abstract: We build a sovereign default model to understand the implications of rising safe interest rates for countries with high public debt. When debt levels are below a critical threshold, countries respond to higher interest rates by reducing their debt due to a dominant substitution effect. For high debt levels, in contrast, the same rate rise triggers even more debt - and possibly a slow-moving debt spiral - due to a dominant income effect. The seeds for a debt spiral are laid by a long phase of low interest rates: they imply that debt levels rise over time, making a future interest rate normalization more difficult. A successful interest rate normalization involves a credible path of rising interest rates, the speed of which must be intermediary: a too fast normalization leads to debt spirals, but a too slow one undermines incentives by the government to repay.

JEL Classification: E43, E44, F34, G01, H63
Keywords: sovereign debt, sovereign default, low interest rates, slow moving debt crisis, interest rate normalization

Full Text: Fear of Hiking? Rising Interest Rates in Times of High Public Debt

At the last webinar of the season, we´ll be talking about polishing and finalizing your applications.
All applicants to MA in Economic Research or PhD in Economics are invited!
You are welcome to join us on March 21 at 15.00 (CET).

Please register here

https://cuni-cz.zoom.us/j/95355791252?pwd=Y3phdG9aRWVkOU1vVk0rUkxsSGw4dz09
Meeting ID: 953 5579 1252
Passcode: 144968