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This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth

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  • Markus Eberhardt
  • Andrea F. Presbitero

Abstract

We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis takes particular note of theoretical arguments and data considerations in modelling the debt-growth relationship as heterogeneous across countries. We investigate the issue of nonlinearities (‘debt thresholds’) in both the cross- and within-country dimensions, employing novel approaches and diagnostics from the time-series literature adapted for use in the panel. Our findings suggest that whatever the shape and form of the debt-growth relationship, it differs across countries, so that appropriate policies for one country may be seriously misguided in another.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 2013/10.

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Date of creation: 2013
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Handle: RePEc:not:notcfc:13/10

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Web page: http://www.nottingham.ac.uk/cfcm/index.aspx
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Keywords: economic growth; public debt; common factor model; nonlinearity; summability; balance and co-summability; asymmetric ARDL;

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  1. Il n’y a pas de seuil magique dans la relation entre croissance et endettement
    by ? in D'un champ l'autre on 2014-02-15 14:08:00
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Cited by:
  1. Alexander Chudik & Kamiar Mohaddes & M. Hashem Pesaran & Mehdi Raissi, 2013. "Debt, Inflation and Growth: Robust Estimation of Long-Run Effects in Dynamic Panel Data Models," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1350, Faculty of Economics, University of Cambridge.
  2. Ugo Panizza & Andrea F. Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 175-204, June.
  3. Sequeira, Tiago & Santos, Marcelo & Ferreira-Lopes, Alexandra, 2014. "Income Inequality, TFP, and Human Capital," MPRA Paper 55471, University Library of Munich, Germany.

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