Looking at the long-term developments in total debt, which includes both private- and publicsector debt – with the latter on a net basis – we find that (1) the debt ratio rose in many countries in the 1980s; (2) it stabilized in the 1990s as a whole; and (3) it rose in the 2000s led by Spain, the United States, and the United Kingdom, followed by Japan from around 2005.
Indeed, an increase in policy rates will result in larger interest payments, hence a worsening of the firm’s cash flow and its ability to self finance, and in a decrease in the value of assets that could be used as collateral for new loans.