Valentin Lang, David Mihalyi, Andrea Presbitero, 14 October 2020

To mitigate the effects of the Covid-19 crisis, the international community has endorsed a programme suspending debt service payments for poor countries. This column shows that the programme has led to a substantial decrease in sovereign borrowing costs by providing liquidity. Importantly, the results do not lend support to the widespread concern that such debt relief could generate stigma and signal debt sustainability concerns.   

Andrea Presbitero, Ursula Wiriadinata, 05 August 2020

As interest rate-growth differentials (r-g) have turned negative in many countries, now could be the time for governments to pursue fiscal expansions. However, the downside risks of such policies should not be disregarded. Using a large sample of economies, this column finds that high and increasing public debts, especially when denominated in foreign currencies, can lead to more volatile r-g dynamics. In particular, this is associated with higher probabilities of r-g reversals, tail risks, and an increased exposure to domestic and global shocks. Policymakers should take note of these risks when designing future fiscal expansions.

Paul McGhee, Julio Suarez, Gary Simmons, 29 April 2016

The European Commission aims to propose new legislative on business insolvency by the end of 2016. This column presents new research that seeks to quantify the impact of improving EU-wide insolvency regimes. It suggests that improving insolvency regimes could reduce corporate bond spreads by 18 to 37 basis points, expand EU GDP by 0.3% to 0.55% over the long term, and increase employment by 0.6 to 1.2 million new jobs. A number of proposals for targeted harmonisation are also outlined. 

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