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Government debt and macroeconomic activity: a predictive analysis for advanced economies

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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.

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  • Deniz Baglan & Emre Yoldas, 2013. "Government debt and macroeconomic activity: a predictive analysis for advanced economies," Finance and Economics Discussion Series 2013-05, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-05
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    Cited by:

    1. Séverine MENGUY, 2019. "Does public indebtedness constrain or can it favor economic growth? A simple analytical modeling," Bulletin of Applied Economics, Risk Market Journals, vol. 6(2), pages 1-29.
    2. Balazs Egert, 2013. "The 90% Public Debt Threshold: The Rise & Fall of a Stylised Fact," William Davidson Institute Working Papers Series wp1048, William Davidson Institute at the University of Michigan.
    3. Balẳ Égert, 2015. "The 90% public debt threshold: the rise and fall of a stylized fact," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3756-3770, July.
    4. Balázs Égert, 2015. "Public debt, economic growth and nonlinear effects: Myth or reality?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 226-238.
    5. Mohammed Daher Alshammary & Zulkefly Abdul Karim & Norlin Khalid & Riayati Ahmad, 2020. "Debt-Growth Nexus in the MENA Region: Evidence from a Panel Threshold Analysis," Economies, MDPI, vol. 8(4), pages 1-12, November.
    6. Blessy Augustine & O.P.C. Muhammed Rafi, 2021. "Public Debt - Economic Growth: Evidence of a Non-linear Relationship," BASE University Working Papers 11/2021, BASE University, Bengaluru, India.
    7. Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.
    8. Sokbae (Simon) Lee & Hyunmin Park & Myung Hwan Seo & Youngki Shin, 2014. "A contribution to the Reinhart and Rogoff debate: not 90 percent but maybe 30 percent," CeMMAP working papers CWP39/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    9. Guillaume Cléaud & Francisco de Castro Fernández & Jorge Durán Laguna & Lucia Granelli & Martin Hallet & Anne Jaubertie & Carlos Maravall Rodriguez & Diana Ognyanova & Balazs Palvolgyi & Tsvetan Tsali, 2019. "Cruising at Different Speeds: Similarities and Divergences between the German and the French Economies," European Economy - Discussion Papers 2015 - 103, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. E. Tsanana & X. Chapsa & C. Katrakilidis, 2016. "Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU," Applied Economics, Taylor & Francis Journals, vol. 48(33), pages 3131-3147, July.

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