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contingent liabilities from being realized in the first place. Debt managers around the world will have to pay close attention to the evolution of contingent liabilities and their impact on public debt in order to avoid surprises.
Notes 1. There is extensive literature on the correlation between banking crises and sovereign debt crises. See, for example, Reinhart and Rogoff (2009). 2. Blanchard, Dell’Ariccia, and Mauro (2010) have noted that the degree of postcrisis fiscal adjustment that will be necessary is “formidable” if one were to consider the aging-related challenges in pensions and health care that the advanced economies face. They highlight the importance of creating ample fiscal space by harnessing future economic booms and by adopting credible commitments to reduce their debt-to-GDP ratios, including through frameworks (and fiscal rules) that help limit spending increases in economic boom periods. Better automatic stabilizers will help as well.
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