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Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing

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  • Markus Eberhardt

Abstract

This paper employs novel time series methods to investigate the presence of nonlinearities in the long-run relationship between public debt and growth, analysing annual series for the United States, Great Britain, Japan and Sweden from the 1800s to 2008. We find only limited evidence for a nonlinear long-run relationship in these countries and further cannot support the notion that the equilibrium debt-growth relationship is identical across countries. Both results weaken the case for a common 90% or indeed any common debt/GDP threshold recently popularised by the work of Reinhart and Rogoff (2010) and others.

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File URL: http://www.nottingham.ac.uk/cfcm/documents/papers/13-06.pdf
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Bibliographic Info

Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 2013/06.

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Date of creation: 2013
Date of revision:
Handle: RePEc:not:notcfc:13/06

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/cfcm/index.aspx
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Related research

Keywords: economic growth; public debt; nonlinearity; summability; balance and co-summability;

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  23. Kourtellos, Andros & Stengos, Thanasis & Tan, Chih Ming, 2013. "The effect of public debt on growth in multiple regimes," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 35-43.
  24. Vanessa Berenguer Rico & Jesus Gonzalo, 2011. "Summability of stochastic processes: a generalization of integration and co-integration valid for non-linear processes," Economics Working Papers we1115, Universidad Carlos III, Departamento de Economía.
  25. Thomas Herndon & Michael Ash & Robert Pollin, 2013. "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff," Working Papers wp322, Political Economy Research Institute, University of Massachusetts at Amherst.
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Cited by:
  1. Markus Eberhardt & Andrea Presbitero, 2013. "This Time They Are Different: Heterogeneity and Nonlinearity in the Relationship Between Debt and Growth," IMF Working Papers 13/248, International Monetary Fund.

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