Carmen Reinhart and Kenneth Rogoff analyze international historical experience with public debt in their new paper “Growth in a Time of Debt” (NBER working paper No. 15639, January 2010).
Using a dataset of 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances, they find that below this debt/GDP threshold the relationship between government debt and real GDP growth is weak , while above 90% growth rates fall.
Emerging markets face lower thresholds for external debt (60% of GDP) beyond which growth rates fall by two percent, and even more for higher levels.
And “there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group”. For emerging markets, however, inflation rises sharply as debt increases.
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