During the “Great Moderation” that preceded the COVID-19 pandemic, years of low inflation led to the growth of sovereign debt issued at fixed interest rates and long maturities. And now, two years of unexpected US inflation have effectively diluted these obligations, in America and elsewhere.
CAMBRIDGE – As developing countries confront a new era of elevated inflation, rising interest rates, a stronger dollar, and capital outflows, some governments stand to benefit from a little-noticed bonanza. During the “Great Moderation” that preceded the COVID-19 pandemic, years of low inflation led to the growth of sovereign debt issued at fixed interest rates and long maturities. Now, two years of unexpected inflation in the United States have effectively diluted this debt.
CAMBRIDGE – As developing countries confront a new era of elevated inflation, rising interest rates, a stronger dollar, and capital outflows, some governments stand to benefit from a little-noticed bonanza. During the “Great Moderation” that preceded the COVID-19 pandemic, years of low inflation led to the growth of sovereign debt issued at fixed interest rates and long maturities. Now, two years of unexpected inflation in the United States have effectively diluted this debt.