Inflation and Public Debt Reversals in Advanced Economies

24 Pages Posted: 23 Jan 2020

See all articles by Ichiro Fukunaga

Ichiro Fukunaga

Bank of Japan

Takuji Komatsuzaki

International Monetary Fund (IMF)

Hideaki Matsuoka

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: December 2019


This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.

Keywords: Real interest rates, Negative interest rates, Economic growth, Financial crises, Economic forecasting, Inflation, public debt, financial repression, advanced economies, WP, debt-to-GDP ratio, debt-to-GDP, long-term debt, WEO, long-term interest rate

JEL Classification: E31, E63, H63, E01, G21, E52

Suggested Citation

Fukunaga, Ichiro and Komatsuzaki, Takuji and Matsuoka, Hideaki, Inflation and Public Debt Reversals in Advanced Economies (December 2019). IMF Working Paper No. 19/297. Available at SSRN:

Ichiro Fukunaga (Contact Author)

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91

Takuji Komatsuzaki

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Hideaki Matsuoka

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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