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Public and Private Debt after the Pandemic and Policy normalization

Public and Private Debt after the Pandemic and Policy normalization

The fiscal response to the economic disruptions caused by the COVID-19 pandemic has generated a significant increase in public debt. At the same time, it seems likely that private debt also will increase. The rise in indebtedness has implications for the effectiveness of monetary policy and might also lead to pressure on the central bank to maintain low interest rates for an extended period of time. Although the challenge of normalizing monetary policy while reducing debt appears daunting, historical episodes, especially in the case of the United States, suggest that it is feasible. This could require an unusual degree of coordination between fiscal and monetary policymakers.