Sovereign debt effects and composition : evidence from time-varying estimates

We compute time-varying responses of the sovereign debt ratio to primary budget balances for 13 advanced economies between 1980 and 2012, and assess how fiscal sustainability reacts to different characteristics of government debt. We find that the fiscal sustainability time-varying coefficient increases the higher the share of public debt denominated in foreign currency. Moreover, the countries become more sustainable if they contract a higher share of long-term public debt, if it is held by the central bank or if it is easily marketable.