This paper examines the impact of high government debt on monetary policy in advanced and emerging market economies. It finds that government debt surprises lead to persistent increases in inflation expectations in emerging market economies, but not in advanced economies. The effects are stronger when initial debt levels are high, when inflation levels are initially high, and when debt dollarization is significant. However, debt surprises have only modest effects in economies with inflation targeting regimes. The findings suggest that high government debt levels may pose a challenge to containing inflation in emerging market economies, but not in advanced economies.
