Finance Research Seminar - Richard EVANS
Richard EVANS - University of Chicago
Friday 6 December 2019 (10h30 - 12h00) - Extranef - 126
"Public Debt, Interest Rates, and Negative Shocks” by Richard W. Evans
This paper studies the broadly measured costs and risks of public debt when it is possible for the government to default. I find that increasing public debt can pose significant macroeconomic and individual welfare risks when rare negative events are possible. These results contrast with recent studies that have argued that the costs of public debt might be low in environments in which interest rates are low for prolonged periods. I use a two-period overlapping generations model with aggregate shocks and a lump sum pay-as-you-go government transfer system to study this question.