BIS: The real effects of debt
Comment of the Day

August 31 2011

Commentary by Eoin Treacy

BIS: The real effects of debt

Thanks to a subscriber for this report from the Bank of International Settlements which was presented at the recent Jackson Hole meeting. It is posted without further comment but here is the abstract:
"Our results support the view that, beyond a certain level, debt is bad for growth. For government debt, the threshold is in the range of 80 to 100% of GDP. The immediate implication is that countries with high debt must act quickly and decisively to address their fiscal problems. The longer-term lesson is that, to build the fiscal buffer required to address extraordinary events, governments should keep debt well below the estimated thresholds. Up to a point, corporate and household debt can be good for growth. But when corporate debt goes beyond 90% of GDP, our results suggest that 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."
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