Data and Code for: Public Debt, Interest Rates, and Negative Shocks

This repository contains code and documentation for the analyses in "Public Debt, Interest Rates, and Negative Shocks," by Richard W. Evans.<br><br>Abstract:<br>Debt-to-GDP ratios across developed economies are at historically high levels and government borrowing rates have remained persistently low. Blanchard (2019) provides evidence that the fiscal costs are low of increased government debt in low interest rate environments and that long-run average welfare effects can be positive. This paper attempts to replicate Blanchard's main results and tests their robustness to some key assumptions about risk in the model. This study finds that the attempted replication of Blanchard's stated approach results in no long-run average welfare gains from increased government debt and that those welfare losses are exacerbated if some strong risk-reducing assumptions are relaxed to more realistic values. Furthermore, I argue that the Blanchard calibration strategy also biases the results toward more beneficial government debt.<br>