Government debt and macroeconomic activity: a predictive analysis for advanced economies
This paper explores the empirical relationship between government debt and future macroeconomic activity using data on twenty advanced economies throughout the post-war era. We use robust inference techniques to deal with the bias arising from the persistent nature of debt to GDP ratio as an endogenous predictor of GDP growth. Our results show that statistical significance of the coefficient on the debt ratio in predictive regressions changes considerably with the use of robust inference techniques. For countries with relatively low average debt ratios we find a negative threshold effect as their debt ratios increase toward moderate levels. For countries with chronically high debt ratios, GDP growth slows as relative government debt increases, but we find no significant threshold effect.
|Date of creation:||2013|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
- Jesús Gonzalo & Michael Wolf, 2001.
"Subsampling inference in threshold autoregressive models,"
Economics Working Papers
573, Department of Economics and Business, Universitat Pompeu Fabra.
- Gonzalo, Jesus & Wolf, Michael, 2005. "Subsampling inference in threshold autoregressive models," Journal of Econometrics, Elsevier, vol. 127(2), pages 201-224, August.
- Erik Hjalmarsson, 2008.
"Predicting global stock returns,"
International Finance Discussion Papers
933, Board of Governors of the Federal Reserve System (U.S.).
- Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-388, May.
- Stambaugh, Robert F., 1999.
Journal of Financial Economics,
Elsevier, vol. 54(3), pages 375-421, December.
- 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.
- Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 69-86, Summer.
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2010.
"Growth in a Time of Debt,"
11129154, Harvard University Department of Economics.
- Peter C.B. Phillips & Hyungsik R. Moon, 1999.
"Nonstationary Panel Data Analysis: An Overview of Some Recent Developments,"
Cowles Foundation Discussion Papers
1221, Cowles Foundation for Research in Economics, Yale University.
- Peter Phillips & Hyungsik Moon, 2000. "Nonstationary panel data analysis: an overview of some recent developments," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 263-286.
- Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2010. "The future of public debt: prospects and implications," BIS Working Papers 300, Bank for International Settlements.
- Hodrick, Robert J, 1992.
"Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement,"
Review of Financial Studies,
Society for Financial Studies, vol. 5(3), pages 357-386.
- Tom Doan, "undated". "OLSHODRICK: RATS procedure to compute Hodrick standard errors," Statistical Software Components RTS00147, Boston College Department of Economics.
- Wolf, Michael, 2000. "Stock Returns and Dividend Yields Revisited: A New Way to Look at an Old Problem," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 18-30, January.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2013-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)
If references are entirely missing, you can add them using this form.