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Abheek Barua & Shivom Chakravarti: Deconstructing debt

A recent working paper arrives at quantitative thresholds beyond which debt goes from being 'good' to 'bad'

Now that everyone in the western world (households, firms and governments) is desperately trying to reduce his level of debt, it might be useful to ask a couple of fundamental questions. What impact will this process of debt reduction have on things like growth and inflation? Is there a substantive difference between the effects of deleveraging in the short term and in the medium to long term? Finally, how much debt-reduction is really desirable from current levels? Put differently, is it possible to identify optimal debt levels (from a macro-perspective) for different groups like households ...