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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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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
Date of revision:
Handle: RePEc:not:notcfc:13/06
Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
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  1. Jesus Gonzalo & Jean-Yves Pitarakis, 2006. "Threshold effects in cointegrating relationships," Economics Working Papers we20060621, Universidad Carlos III, Departamento de Economía.
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  3. Balázs Égert, 2013. "The 90% public debt threshold: The rise and fall of a stylised fact," EconomiX Working Papers 2013-23, University of Paris West - Nanterre la Défense, EconomiX.
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  8. Reinhart, Carmen M. & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers 7661, C.E.P.R. Discussion Papers.
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  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "A Decade of Debt," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6222.
  11. Markus Eberhardt & Christian Helmers, 2010. "Untested Assumptions and Data Slicing: A Critical Review of Firm-Level Production Function Estimators," Economics Series Working Papers 513, University of Oxford, Department of Economics.
  12. Maurice J.G. Bun & Sarafidis, V., 2013. "Dynamic Panel Data Models," UvA-Econometrics Working Papers 13-01, Universiteit van Amsterdam, Dept. of Econometrics.
  13. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  14. Panizza, Ugo & Presbitero, Andrea F., 2012. "Public debt and economic growth: Is there a causal effect?," POLIS Working Papers 168, Institute of Public Policy and Public Choice - POLIS.
  15. Ugo Panizza & Andrea Filippo Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Mo.Fi.R. Working Papers 78, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  16. repec:tpr:qjecon:v:106:y:1991:i:2:p:407-43 is not listed on IDEAS
  17. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  18. Fabrizio Balassone & Maura Francese & Angelo Pace, 2011. "Public Debt and Economic Growth in Italy," Quaderni di storia economica (Economic History Working Papers) 11, Bank of Italy, Economic Research and International Relations Area.
  19. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  20. 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.
  21. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
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  22. Checherita-Westphal, Cristina & Rother, Philipp, 2012. "The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area," European Economic Review, Elsevier, vol. 56(7), pages 1392-1405.
  23. Thomas Herndon & Michael Ash & Robert Pollin, 2014. "Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff," Cambridge Journal of Economics, Oxford University Press, vol. 38(2), pages 257-279.
  24. César Calderón & J. Rodrigo Fuentes, 2013. "Government Debt and Economic Growth," IDB Publications (Working Papers) 82380, Inter-American Development Bank.
  25. 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.
  26. Paolo Manasse & Nouriel Roubini, 2005. "'Rules of Thumb' for Sovereign Debt Crises," International Finance 0509003, EconWPA.
  27. 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.
  28. Baum, Anja & Checherita-Westphal, Cristina & Rother, Philipp, 2012. "Debt and growth: new evidence for the euro area," Working Paper Series 1450, European Central Bank.
  29. Vanessa Berenguer Rico & Jesús Gonzalo, 2013. "Co-summability from linear to non-linear cointegration," Economics Working Papers we1312, Universidad Carlos III, Departamento de Economía.
  30. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
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