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The dynamic relationship between global debt and output

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Abstract

Given the ramifications of indebtedness for global growth, researchers and policymakers are keenly interested in the mechanisms underlying the linkages between debt and economic output. In our research, summarized in this article, we find that a debt shock adversely affects future economic output, and the impact is most pronounced in developing countries and in countries with a fixed exchange rate regime. This information and related results from the study are useful for policymakers considering appropriate levels of debt as well as an exchange rate regime that is most conducive to economic growth. Another important finding is that the way debt affects economic output depends on the sector, suggesting the importance of separating public debt from private debt when undertaking future empirical studies.

Suggested Citation

  • Caroline Beetz Fenske & Yun Jung Kim & Jing Zhang, 2021. "The dynamic relationship between global debt and output," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue 457, pages 1-5, May.
    • Handle: RePEc:fip:fedhle:91994
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    Cited by:

    1. Mohamed Bouabidi, 2023. "The surge in Tunisia foreign debt: causes and possible ways out," SN Business & Economics, Springer, vol. 3(3), pages 1-23, March.

    More about this item

    Keywords

    public debt; household debt; firm debt; foreign debt; International Lending and Debt Problems; Short-Term Capital Movements;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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