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"This paper proposes a methodology for measuring credit booms and uses it to identify credit booms in emerging and industrial economies over the past four decades. In addition, we use event study methods to identify the key empirical regularities of credit booms in macroeconomic aggregates and micro-level data. Macro data show a systematic relationship between credit booms and economic expansions, rising asset prices, real appreciations, widening external deficits and managed exchange rates. Micro data show a strong association between credit booms and firm-level measures of leverage, firm values, and external financing, and bank-level indicators of banking fragility. Credit booms in industrial and emerging economies show three major differences: (1) credit booms and the macro and micro fluctuations associated with them are larger in emerging economies, particularly in the nontradables sector; (2) not all credit booms end in financial crises, but most emerging markets crises were associated with credit booms; and (3) credit booms in emerging economies are often preceded by large capital inflows but not by financial reforms or productivity gains"--National Bureau of Economic Research web site

"Ratios of public debt as a share of GDP in Brazil, Colombia, and Mexico were 10 percentage points higher on average during 1996-2002 than in the period 1990-1995. Costa Rica's debt ratio remained stable but at a high level near 50 percent. Is there reason to be concerned for the solvency of the public sector in these economies? We provide an answer to this question based on the quantitative predictions of a variant of the framework proposed by Mendoza and Oviedo (2004). This methodology yields forward-looking estimates of debt ratios consistent with fiscal solvency for a government that faces revenue uncertainty and can issue only non-state-contingent debt. In this environment, aversion to a collapse in outlays leads the government to respect a "natural debt limit" equal to the annuity value of the primary balance in a "fiscal crisis". A fiscl crisis occurs after a long sequence of adverse revenue shocks and public outlays adjust to a tolerable minimum. The debt limit also represents a credible commitment to be able to repay even in a fiscal crisis but is not, in general, the same as the sustainable debt, which is driven by the probabilistic dynamics of the primary balance. The results of a baseline scenario question the sustainability of current debt ratios in Brazil and Colombia, while those in Costa Rica and Mexico seem inside the limits consistent with fiscal solvency. In contrast, public debt ratios are found to be unsustainable in all four countries for plausible changes to lower average growth rates or higher real interest rates. Moreover, sustainable debt ratios fall sharply when default risk is taken into account"--National Bureau of Economic Research web site

Since the birth of the Republic, the United States has gone through five debt‐crisis episodes defined as year‐on‐year increases in net federal debt in the 95‐percentile. The Great Recession is the second largest, and the only one in which primary deficits continue six years later and are expected to persist at least through 2026. Persistent deficits are also sharply at odds with the surpluses that contributed to the reversal of all major debt surges in U.S. history. There is a view that high debt is not a concern and more debt is needed for fiscal stimulus and/or strong global demand for 'safe assets'. This paper makes four points to the contrary based on findings from the literature: First, empirical work shows that debt sustainability conditions display a significant break after 2008 and fiscal stimulus fails when debt is high. Second, a dynamic general equilibrium model predicts that tax adjustments may not make the debt sustainable and will have adverse effects on macro aggregates and social welfare. Third, the strong appetite for U.S. public debt worldwide can be a slow‐moving, transitory result from financial globalization in an environment in which U.S. financial markets are relatively more developed and the expected financing needs of the U.S. government are large. Fourth, domestic sovereign default could become optimal if the cost of regressive redistribution in order to make debt payments outweighs default costs related to the social value of debt for liquidity provision, self‐insurance and risk‐sharing.