Debt ceiling acts as fiscal stabiliser, says IMF paper


An International Monetary Fund paper published on January 25 sheds light on the optimal value of fiscal rules' parameters and on the effects of imposing a debt ceiling.

Juan Carlos Hatchondo, Leonardo Martinez and Francisco Roch, the paper's authors, use a sovereign default framework to show how a government may benefit from implementing a debt ceiling. The authors argue that an expectation of lower future debt levels leads to substantial declines in interest rates, which in turn lead to non

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