Growth in a Time of Debt
AbstractWe study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15639.
Date of creation: Jan 2010
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Note: IFM ME
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Other versions of this item:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
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Royal Economic Society, vol. 121(552), pages 319-350, 05.
- Anastasia Guscina & Olivier Jeanne, 2006. "Government Debt in Emerging Market Countries: A New Data Set," IMF Working Papers 06/98, International Monetary Fund.
- Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
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"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
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