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POLITICAL INSTABILITY AND DEBT MATURITY
Author(s) -
MILLER VICTORIA
Publication year - 1997
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1997.tb01891.x
Subject(s) - political instability , economics , instability , politics , economic stability , inflation (cosmology) , unemployment , debt , maturity (psychological) , monetary economics , keynesian economics , macroeconomics , mechanics , political science , physics , law , theoretical physics
Political instability has been blamed for many poor macroeconomic outcomes such as high inflation, unemployment and low growth. I propose yet another negative consequence of political instability: political instability and polarization generate inflation uncertainty which causes the term structure to steepen, consequently political instability and polarization reduce the average maturity and increase the expected cost of debt. A model is derived which illustrates these relationships. Political instability and polarization are then proxied and shown to be inversely related to debt maturity for a sample of OECD countries.