The previous section suggested that a long period of high government debt/GDP ratios may increase uncertainty about the future path of interest rates, both real and nominal. Doubts about how governments will respond probably increase uncertainty about inflation and, perhaps, about future growth. Macroeconomic tail risks seem to have risen. At least much market commentary suggests so – some talk about latent inflation risks while others fret about deflation. The credibility of fiscal and monetary policy frameworks in the advanced countries has been weakened by the crisis. And governments’ ability to implement effective countercyclical policies is more constrained when debt.
