High public debt in the Americas: non-linear implications for risk premia and inflation expectations

Key takeaways 

• Public debt has reached multi-decade highs in the Americas. Additionally, public interest costs have generally increased over the past decade.
• High public debt and interest costs increase the sensitivity of risk premia to fiscal deficits – regardless of the exchange rate regime – and amplify the sensitivity of short-term inflation expectations to fluctuations in risk premia.
• Our analysis underscores the relevance of disciplined fiscal policies, which assume heightened significance in the context of current debt dynamics. On the monetary side, safeguarding central bank independence is crucial for ensuring macroeconomic stability.

The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.