Abstract: Traditional analysis of public debt sustainability uses the face value of securities and the number of remaining coupon payments to calculate aggregate debt. The aggregate approach ignores the granular security-wise breakup of public debt, the maturity structure of these securities, and the information about the path of future expected interest rates contained in bond prices. Hall and Sargent (1997) and Hall and Sargent (2011) provide a framework to track the evolution of aggregate US public debt using the market value of debt. In this approach, the maturity structure of debt is explicitly tracked, and its role in the evolution of aggregate debt can be quantified. In this paper, we illustrate how the Hall-Sargent approach works through a series of examples. We then apply the Hall-Sargent approach using a novel dataset of outstanding Indian Centre gov- ernment securities from 1999-2022. We show that the nominal return on marketable debt accounts for 55.8 percent of the approximately 30 percent of the change in aggregate debt over 1999-2022, a substantial amount. We show that the average maturity of debt using the Hall-Sargent approach is substantially lower than the average maturity calculated us-ing the traditional approach. Our analysis builds on the application of the Hall-Sargent approach to Indian public debt analysis in Das and Ghate (2022) and Ghate and Das (2024). We discuss measures that can raise institutional support for fiscal capacity, and the data requirements needed to support sovereign debt analysis.

Abstract:  Mandated low deposit rates, a classic form of financial repression, let banks fund cheaply and hold government securities, but restrict credit. We study India’s 2011 deregulation of savings deposit rates using branch-level supervisory data for 2007–2016. Guided by a simple model of banks with heterogeneous market power, we show that deregulation differentially erodes deposit-franchise values, depending on the elasticity of deposit demand. After deregulation, banks facing more elastic deposit demand (in less concentrated markets or without sovereign guarantees) raise savings rates, expand branches, attract deposits across savings, term, and current accounts, and shorten their funding maturity. These banks reallocate away from government securities toward loans, increasing credit to households and firms. Banks with inelastic deposit demand keep rates low, retain large government securities portfolios, and expand lending only modestly. A structural random-coefficients model of deposit demand quantifies heterogeneity in elasticities and confirms that market power dampens pass-through to deposit rates. Counterfactuals imply deposits would have been about 40% higher if high-market-power banks had faced the same competitive pressure as low-market-power banks. Overall, the paper highlights how liability-side funding frictions and banking market structure can sustain implicit financial repression even after explicit rate controls are removed and shape both the depth of financial intermediation and the government’s ability to place debt.

Abstract: We develop a dynamic model of monetary-fiscal interactions and government debt. We introduce a novel channel of fiscal dominance through the maturity structure. Faced with an expansionary fiscal policy shock, extending debt-maturity under fiscal dominance becomes a strategic tool for maintaining debt sustainability without immediate price-level adjustments by the monetary authority. We show that extending the maturity of debt raises the interest burden of debt. To validate the results empirically, we assemble a novel central government security level dataset between 1999-2022 for India. We find that the probability of issuing a long-term security is approximately 7 percentage points higher in a fiscal dominant regime compared to a monetary dominant regime. Using the approach in Hall and Sargent (2011) for debt-decomposition, we show that the nominal return on marketable and non-marketable debt is the largest component driving public debt increases in periods of fiscal dominance between 1999-2022. Our paper highlights the ’maturity-structure’ channel of fiscal dominance, and provides a framework to quantify the impact of fiscal dominance on the interest-rate burden of sovereign debt in a large emerging market economy. 

Abstract: A predominant share of employment in many EMDEs is in the informal sector. In India, as of 2019-2020, approximately 72\% of total employment was in the informal sector, with casual employment constituting 22\% and self-employment constituting  50\% of total employment. Given these large shares, how does informality in labor markets affect inflation stabilization and monetary policy setting by inflation targeting central banks? To address this, we build a medium-scale NK-DSGE model with segmented labor markets and search and matching frictions. We calibrate the model to India. As in the data, we divide informal employment into self-employment and casual employment. We show that more formality improves the transmission of monetary policy. We show that a contractionary monetary policy shock leads to a decline in both formal and informal employment (self and casual), suggesting that monetary policy's impact on output and inflation works through informal labor markets as well. Our paper highlights the mechanism behind the transmission of monetary policy in the presence of heterogeneous labor markets.

Abstract: We study how retail central bank digital currency (CBDC) interacts with bailout policy in a Diamond–Dybvig–style model with sequential service, sunspot runs, taxes financing a public good, and a CBDC available to movers and non-movers. We compare four regimes—bailouts vs. no bailouts, each with and without CBDC—and characterize fragility, illiquidity, taxes, and welfare. Bailouts induce generous early payouts and expand the run set; adding CBDC further lowers the withdrawal threshold by providing a safe outside option. Under a credible no-bailout commitment, CBDC essentially stabilizes the system via insurance substitution: banks promise less first-period liquidity, maturity mismatch falls, and tax needs decline. Within fragile equilibria, no-bailout policies dominate bailout policies for welfare, both with and without CBDC; with CBDC, the welfare gap is U-shaped in crisis probability. Taken together, the results suggest that combining CBDC with a credible no-bailout stance can enhance financial stability, contain fiscal costs, and improve welfare.