Marco Buti, Nicolas Carnot, 28 November 2016

The European Commission has just called for a fiscal stance that is more supportive of the recovery and of monetary policy in the Eurozone. This column argues that the case is strong for spending now on investment and other targeted programmes supporting growth and employment. However, fiscal space is heterogeneously distributed across the Eurozone, with some countries able to exploit a clear margin, and others needing to pursue a more prudent approach of gradual debt unwinding. A common stabilisation capacity would help for managing shocks that cannot be absorbed by national stabilisers alone.

Jonathan D. Ostry, Atish R. Ghosh, Raphael Espinoza, 22 June 2015

High public debt ratios dominate today's fiscal policy discussions. This column argues that paying down the debt involves a trade-off that balances the gains from the insurance value of low debt against the costs of an insurance premium – higher distortionary taxation. When countries have fiscal space and no real prospect of a sovereign crisis, the cost of bringing down the debt is likely to exceed the crisis-insurance benefit. The best policy might be to simply live with higher debt.

Jean-Pierre Landau, 02 December 2014

Eurozone inflation has been persistently declining for almost a year, and constantly undershooting forecasts. Building on existing research, this column explores the conjecture that low inflation in the Eurozone results from an excess demand for safe assets. If true, this conjecture would have definite policy implications. Getting out of such a ‘safety trap’ would necessitate fiscal or non-conventional monetary policies tailored to temporarily take risk away from private balance sheets.

Òscar Jordà, Moritz Schularick, Alan Taylor, 18 October 2013

In the aftermath of the global financial crisis, few would dispute the risks of excessive borrowing. But which debts should one worry about – public or private? This column presents new research on the interplay of public and private debts since 1870 in 17 advanced economies. History demonstrates that excessive private-sector borrowing plays a greater role than fiscal profligacy in generating financial instability. However, when the credit boom collapses, the government’s capacity to alleviate the downturn is limited by the prevailing level of public debt.

Joshua Aizenman, Yothin Jinjarak, Michael Hutchison, 08 September 2011

Bond markets provide sleepless nights for even the most powerful of political leaders. This column estimates the pricing of sovereign risk for over 60 countries during the last five years. It finds that fiscal space and other macroeconomic factors are important determinants of market prices of sovereign risk. But when looking at the Eurozone crisis, it finds that the market is excessively pessimistic.

Enrique Mendoza, Atish R. Ghosh, Jonathan D. Ostry, 08 March 2011

The fiscal challenges facing advanced economies today are unprecedented. In this column, the authors re-examine the issue of debt sustainability in a large group of advanced economies, pinning down the concepts of “debt limit” and “fiscal space”. They find that – based on the historical track record of adjustment – a number of countries have either very little or no additional fiscal space.

Joshua Aizenman, Yothin Jinjarak, 04 December 2010

What factors determined the fiscal expansion seen in many developed countries in 2009? This column finds that greater de facto fiscal space prior to the global crisis, higher GDP per capita, more financial exposure to the US, and lower trade openness were all associated with a larger fiscal stimulus relative to GDP and that more open economies may have relied more on exchange-rate depreciation.

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