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Characterizing Public Debt Cycles: Don’t Ignore the Impact of Financial Cycles

Based on the quarterly data from 26 advanced economies (AEs) and 18 emerging market economies (EMs) over the past two decades, this paper estimates the short- and medium-term impacts of financial cycles on the duration and amplitude of public debt cycles. The results indicate that public debt expansions are larger than their contractions in duration and amplitude, aligning with the "deficit bias hypothesis" and being more pronounced in EMs than in AEs. […]