Debt Intolerance : Threshold Level and Composition

Fiscal vulnerabilities depend on both the level and composition of government debt. This study examines the role of debt thresholds and debt composition in driving the non-linear behavior of long-term interest rates through a novel approach, a pane...

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Main Author:	Matsuoka, Hideaki
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	PUBLIC DEBT GENERALIZED PANEL SMOOTH TRANSITION REGRESSION DEBT SERVICE BURDEN DEBT RATIO PRIVATE INVESTMENT LONG-TERM INTEREST RATE DEBT COMPOSITION
Online Access:	http://documents.worldbank.org/curated/en/634991591901999238/Debt-Intolerance-Threshold-Level-and-Composition http://hdl.handle.net/10986/33906

id	okr-10986-33906
recordtype	oai_dc
spelling	okr-10986-339062022-09-20T00:11:19Z Debt Intolerance : Threshold Level and Composition Matsuoka, Hideaki PUBLIC DEBT GENERALIZED PANEL SMOOTH TRANSITION REGRESSION DEBT SERVICE BURDEN DEBT RATIO PRIVATE INVESTMENT LONG-TERM INTEREST RATE DEBT COMPOSITION Fiscal vulnerabilities depend on both the level and composition of government debt. This study examines the role of debt thresholds and debt composition in driving the non-linear behavior of long-term interest rates through a novel approach, a panel smooth transition regression with a general logistic model. The main findings are threefold. First, the impact of the expected public debt level on interest rates rises exponentially when the share of foreign private holdings exceeds approximately 20 percent of government debt denominated in local currency. Second, when the share of foreign private investors is 30 percent, an increase in the share of foreign private holdings of government debt could raise long-term interest rates once the public debt-to-GDP ratio exceeds 60 percent of GDP, offsetting the downward pressure on long-term interest rates from higher market liquidity. Third, out-of-sample forecasts of this novel non-linear model are more accurate than those of previous methods. 2020-06-15T14:37:00Z 2020-06-15T14:37:00Z 2020-06 Working Paper http://documents.worldbank.org/curated/en/634991591901999238/Debt-Intolerance-Threshold-Level-and-Composition http://hdl.handle.net/10986/33906 English Policy Research Working Paper;No. 9276 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	PUBLIC DEBT GENERALIZED PANEL SMOOTH TRANSITION REGRESSION DEBT SERVICE BURDEN DEBT RATIO PRIVATE INVESTMENT LONG-TERM INTEREST RATE DEBT COMPOSITION
spellingShingle	PUBLIC DEBT GENERALIZED PANEL SMOOTH TRANSITION REGRESSION DEBT SERVICE BURDEN DEBT RATIO PRIVATE INVESTMENT LONG-TERM INTEREST RATE DEBT COMPOSITION Matsuoka, Hideaki Debt Intolerance : Threshold Level and Composition
relation	Policy Research Working Paper;No. 9276
description	Fiscal vulnerabilities depend on both the level and composition of government debt. This study examines the role of debt thresholds and debt composition in driving the non-linear behavior of long-term interest rates through a novel approach, a panel smooth transition regression with a general logistic model. The main findings are threefold. First, the impact of the expected public debt level on interest rates rises exponentially when the share of foreign private holdings exceeds approximately 20 percent of government debt denominated in local currency. Second, when the share of foreign private investors is 30 percent, an increase in the share of foreign private holdings of government debt could raise long-term interest rates once the public debt-to-GDP ratio exceeds 60 percent of GDP, offsetting the downward pressure on long-term interest rates from higher market liquidity. Third, out-of-sample forecasts of this novel non-linear model are more accurate than those of previous methods.
format	Working Paper
author	Matsuoka, Hideaki
author_facet	Matsuoka, Hideaki
author_sort	Matsuoka, Hideaki
title	Debt Intolerance : Threshold Level and Composition
title_short	Debt Intolerance : Threshold Level and Composition
title_full	Debt Intolerance : Threshold Level and Composition
title_fullStr	Debt Intolerance : Threshold Level and Composition
title_full_unstemmed	Debt Intolerance : Threshold Level and Composition
title_sort	debt intolerance : threshold level and composition
publisher	World Bank, Washington, DC
publishDate	2020
url	http://documents.worldbank.org/curated/en/634991591901999238/Debt-Intolerance-Threshold-Level-and-Composition http://hdl.handle.net/10986/33906
_version_	1764479770220822528

Debt Intolerance : Threshold Level and Composition

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