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Abstract

We analyse the relationship between the debt to GDP ratio and real per capita GDP growth for the euro area members by distinguishing between periods of sustainable and non-sustainable debt. Thresholds are theory-based and depend on the macroeconomic framework. If the interest rate exceeds nominal output growth, primary budget surpluses are required to achieve a sustainable debt ratio. The negative impact of the debt to GDP ratio is particularly strong for non sustainable ratios and especially relevant for the euro area. This suggests that the participation in monetary union might entail an additional risk for its members. --

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Bibliographic Info

Paper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 327.

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Date of creation: 2012
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Handle: RePEc:zbw:euvwdp:327

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Related research

Keywords: Euro area debt crisis; debt sustainability;

Other versions of this item:

Find related papers by JEL classification:

• F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
• O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
• C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series

This paper has been announced in the following NEP Reports:

• NEP-ALL-2012-12-06 (All new papers)
• NEP-EEC-2012-12-06 (European Economics)
• NEP-OPM-2012-12-06 (Open Economy Macroeconomic)

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1. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers 7661, C.E.P.R. Discussion Papers.
   
   • Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
   • Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," NBER Working Papers 15639, National Bureau of Economic Research, Inc.
2. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
3. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Debt Overhangs: Past and Present," NBER Working Papers 18015, National Bureau of Economic Research, Inc.
4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, March.
5. Anja Baum & Cristina Checherita-Westphal & Philipp Rother, 2012. "Debt and growth: new evidence for the Euro area," Working Paper Series 1450, European Central Bank.
6. Christian Dreger & Hans-Ulrich Brautzsch, 1999. "Firm Investment Behaviour in Germany: An Explanation Based on Seasonal Cointegration Techniques," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 219(3+4), pages 284-297, September.

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