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The probability of a self-fulfilling bad equilibrium in sovereign debt markets depends little on the debt level itself, but is much reduced by a rule linking the primary balance to debt service increases.

Drawn from what Olivier Blanchard said

Subjectspublic debtJavaScriptfiscal policy
What this subject means

fiscal policy The spending-and-taxing half of macro, as against the central-bank half: multipliers, stabilisers, stimulus.

What Olivier Blanchard actually said

  1. Olivier Blanchard Economist; former chief economist of the International Monetary Fund
    I have argued that the probability of a bad equilibrium is only marginally influenced by the level of debt, but can be much reduced by a contingent rule making the primary balance react to an increase in debt service.

    Where this was said

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu

    1 Jun 2022

    All 22 korrents from this piecethis one is 15th

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