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The Janus-faced nature of debt : result from a data-driven cointegrated SVAR approach

Listed author(s):
  • Mattia Guerini

    (OFCE-Sciences PO)

  • Alessio Moneta

    (Scuola Superiore Sant'Anna, Pisa, Italy)

  • Mauro Napoletano

    (OFCE-Sciences Po)

  • Andrea Roventini

    (Scuola Superiore Sant'Anna, Pisa, Italy)

In this paper, we investigate the causal effects of public and private debts on U.S. 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 GDP, 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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File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2017-02.pdf
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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2017-02.

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Date of creation: Jan 2017
Handle: RePEc:fce:doctra:1702
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