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Author
Reinwald Raphael (University of Gdańsk, Poland)
Title
Sovereign Debt and Inflation - Did We Tame the Ghost? Debt in Times of Crisis and Its Cointegration with Inflation
Source
International Business and Global Economy, 2020/2021, nr 39, s. 20-38, bibliogr. 88 poz.
Biznes Międzynarodowy w Gospodarce Globalnej
Issue title
Competitiveness and Economic Development - Macroeconomic Aspects and Challenges
Keyword
Dług publiczny, Inflacja, Kryzys finansowy, Recesja gospodarcza, Model wektorowej korekty błędem
Public debt, Inflation, Financial crisis, Economic recession, Vector error correction model (VECM)
Note
JEL Classification: C5, E5, E5, H5, N1
summ.
Abstract
With sovereign debt levels at record highs in western democracies - a problem exacerbated by the pandemic - the world faces the question of induced rising inflation on the horizon. This article presents a comprehensive review of literature about the most severe world economic crisis in the 20th and 21st centuries - the great depression and the great recession - as well as the debt levels preceding and following them. Furthermore, it investigates root causes of inflation and its connection with sovereign debt in developed economies. Finally, applying a vector error correction model, it shows the existence of a cointegrating relationship between debt and inflation in the US (and a positive sign of the former on the latter), confirming a moderate macroeconomic correlation between the two. Hence, despite the long period of high debt and low inflation fueling a recent-experience bias, the answer to question posed in the title is negative. The conclusion is that without substantial debt reduction over time, the (Western) world economies will again see a rising inflation regime. Informed and independent central banks are therefore ever-more important.(original abstract)
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Bibliography
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ISSN
2300-6102
Language
pol
URI / DOI
https://doi.org/10.26881/ibage.2021.39.02
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