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Private and public debt convergence: a fractional cointegration approach

Author

Listed:
  • Maria Malmierca-Ordoqui

    (Universidad Villanueva)

  • Luis A. Gil-Alana

    (University of Navarra)

  • Lorenzo Bermejo

    (Universidad Villanueva)

Abstract

The devastating effects of the financial and economic recessions within the last two decades have led researchers to question whether there is a connection between the public and private financial sectors that contributes to the rapid propagation of crisis. We analyze the fractional cointegrating structure between the private and public debt-to-GDP ratios for 17 European countries to examine the relevance of this relationship as an amplification channel of shocks. On the one hand, the univariate fractional integration approach reveals that shocks have permanent effects on financial variables in all the countries considered. On the other hand, we find that the number of countries for which private and public debt are cointegrated increase after the Great Recession.

Suggested Citation

  • Maria Malmierca-Ordoqui & Luis A. Gil-Alana & Lorenzo Bermejo, 2024. "Private and public debt convergence: a fractional cointegration approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(1), pages 161-183, February.
    • Handle: RePEc:kap:empiri:v:51:y:2024:i:1:d:10.1007_s10663-023-09594-9
    DOI: 10.1007/s10663-023-09594-9
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    More about this item

    Keywords

    Private credit; Public debt; Persistence; Fractional cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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