Richmond Fed paper highlights benefit of debt ceiling

Governments that adopt debt ceilings at an early stage can accrue benefits, according to a working paper published by the Federal Reserve Bank of Richmond on March 21.

Authors Juan Carlos Hatchondo, Leonardo Martinez and Francisco Roch find that when governments apply a debt ceiling, markets respond by anticipating lower interest rates. This causes the bond price to increase.

This causes the government's fiscal position to potentially improve, and allows it more flexibility on fiscal policy. The

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