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Stock-Flow Adjustments, Public Debt Management and Interest Costs

The authors find evidence of a non-linear relationship between stock-flow adjustments and debt levels that is different for low- and high-debt economies. Stock-flow adjustments are largely a by-product of efficient public debt management. The authors study an alternative measure of interest costs on debt — dubbed shadow interest costs — that accounts for the effects of stock-flow adjustments, allowing stock-flow consistent analyses of debt dynamics. Shadow interest costs are larger, more volatile, and sensitive to changes in macroeconomic conditions than standard interest costs. The dynamics of shadow interest costs is largely shaped by common global factors that mirror U.S. interesse rates.