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Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing

  • Markus Eberhardt

This paper employs novel time series methods to investigate the presence of nonlinearities in the long-run relationship between public debt and growth, analysing annual series for the United States, Great Britain, Japan and Sweden from the 1800s to 2008. We find only limited evidence for a nonlinear long-run relationship in these countries and further cannot support the notion that the equilibrium debt-growth relationship is identical across countries. Both results weaken the case for a common 90% or indeed any common debt/GDP threshold recently popularised by the work of Reinhart and Rogoff (2010) and others.

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File URL: http://www.nottingham.ac.uk/cfcm/documents/papers/13-06.pdf
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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 2013/06.

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Date of creation: 2013
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Handle: RePEc:not:notcfc:13/06
Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Web page: http://www.nottingham.ac.uk/cfcm/index.aspx

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  19. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
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  24. Vanessa Berenguer Rico & Jesus Gonzalo, 2011. "Summability of stochastic processes: a generalization of integration and co-integration valid for non-linear processes," Economics Working Papers we1115, Universidad Carlos III, Departamento de Economía.
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  26. Tito Cordella & Luca Antonio Ricci & Marta Ruiz-Arranz, 2010. "Debt Overhang or Debt Irrelevance?," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 1-24, April.
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