Debt metrics fail to reflect financial instability – BIS paper
Author says standard measures of government debt sustainability omit key market dynamics
Standard measures of fiscal sustainability can be misleading as they fail to capture the ways in which financial markets can amplify stress, research published by the Bank for International Settlements finds.
The working paper, published on March 26, sets out a framework that incorporates financial intermediation and market dynamics into an assessment of fiscal sustainability. The framework includes the sovereign-bank nexus, exchange rates, the effects of duration matching and possible
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