The debt-to-GDP ratio goes up because GDP is a flow that starts every year at zero, and debt is a stock that starts every year where it left off the year before.
This graph shows a stock relative to a stock:
Why does it go up?
Saturday, August 10, 2019
Just a question
"Ideally," Cecchetti Mohanty and Zampolli write, "we would prefer to measure either a stock relative to a stock or a flow divided by a flow."
The debt-to-GDP ratio goes up because GDP is a flow that starts every year at zero, and debt is a stock that starts every year where it left off the year before.
This graph shows a stock relative to a stock:
Why does it go up?
The debt-to-GDP ratio goes up because GDP is a flow that starts every year at zero, and debt is a stock that starts every year where it left off the year before.
This graph shows a stock relative to a stock:
Why does it go up?
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From the New York Fed: Monetary Aggregates and Federal Reserve Open Market Operations by Paul Meek and Rudolf Thunberg, in the "Monthly Review" of April, 1971:
"In 1970 the Federal Open Market Committee (FOMC) began to establish longer term objectives for the growth of selected monetary and credit aggregates as an integral part of its instructions for the conduct of open market operations...
The policy record for [the March 10, 1970] meeting indicates that the Committee was setting as its objectives a growth rate of 3 percent for the money supply (currency outside banks and private demand deposits) and 5 percent for the adjusted bank credit proxy over the second quarter."
The goal was to have credit grow faster than the quantity of money.
From the February 1992 testimony of Alan Greenspan to Congress:
"To support these favorable outcomes for economic activity and inflation, the Committee reaffirmed the ranges for M2, M3, and debt that it had selected on a tentative basis last July--that is, 2-1/2 to 6-1/2 percent for M2, 1 to 5 percent for M3, and 4-1/2 to 8-1/2 percent for debt, measured on a fourth-quarter-to-fourth-quarter basis. These are the same as the ranges used for 1991."
The goal was to have credit grow faster than the quantity of money.
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