BIS Research Shows Slower Growth Expected When Public, Private, Household Debt Become Large

September 29, 2011

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Rogoff and Reinhart’s research showed once public debt to gdp ratios hit 90%, GDP growth has historically slowed. The IMF research above builds on Rogoff and Reinhart’s study studying the effects of excessive household and corporate debt in the private sector. “When corporate debt goes beyond 90% of GDP, it becomes a drag on growth. And for household debt, we report a threshold around 85% of GDP, although the impact is very imprecisely estimated.” When computing public debt figures in order to understand a sovereign’s fiscal position, economists do not include private debt.  However, during a crises, this private debt has a way of becoming public debt through bailouts. Indeed, rapid growth in private debt is a leading indicator of a financial crises. 

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