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The Janus face nature of debt : results from a data-driven cointegrated SVAR approach

Author

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  • Mattia Guerini

    (Scuola Superiore Sant'Anna)

  • Alessio Moneta
  • Mauro Napoletano

    (Observatoire français des conjonctures économiques)

  • Andrea Roventini

    (Observatoire français des conjonctures économiques)

Abstract

In this paper, we investigate the causal effects of public and private debts on US output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on gross domestic product, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run.

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  • Mattia Guerini & Alessio Moneta & Mauro Napoletano & Andrea Roventini, 2018. "The Janus face nature of debt : results from a data-driven cointegrated SVAR approach," Sciences Po publications info:hdl:2441/574jpbbn0f8, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/574jpbbn0f8f5r56hqi6mjgm9d
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    3. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2018. "Nonfinancial debt and economic growth in euro-area countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 17-37.
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    More about this item

    Keywords

    Public and private debt; Business cycle fluctuations; Independant Component analysis; SVAR Identification;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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