INTERNATIONAL FINANCES

KOZIUK Viktor ¹

¹West Ukrainian National University
OrcID ID : https://orcid.org/0000-0002-5715-2983

Macro-fiscal factors of global instability

Public debt increase together with large contingent liabilities is becoming a source of global instability. Low global interest rates still allow to combine the measures of fiscal activism with moderate burden of interest payments. However, the scope of spreads under uncertainty of future economic growth expands as public debt in global economy increases. Approaching to debt limits may become faster and more invisible in terms of collective fiscal shock. Under low interest rates, exclusion effect transforms reflecting an increase of dependence of assets value from crediting of ultimate authority. Fragmentation of financial markets enhances negative spillovers and speculative expectations as public debt increases among countries. Taking into account a tight link between sovereign and private spreads, global fiscal destabilization will trigger exclusion of private investments in countries that cannot count on vast liquidity support from a central bank. Fiscal inflation disguises in global monetary relations due to which macrofinancial limits of monetary support of sovereign solvency are much stronger tied to volatility of assets value and prices on primary resources. Under global fiscal instability, countries with emerging markets have to purse the policy of creation of provident fiscal space. Emerging markets countries with weak institutions should choose the strategy of balanced budget, since they are the most vulnerable to macrofinancial shocks, and Keynesian demand effects are destabilizing in these countries.

Keywords: public debt, macrofiscal instability, crowding out effect, sovereign creditworthiness, spreads, public debt burden.

JEL: E62, F30, F34, F62, F65

KOZIUK V. . Macro-fiscal factors of global instability / V. . KOZIUK // Фінанси України. - 2014. - № 3. - C. 8-22.