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This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth

  • Markus Eberhardt
  • Andrea F. Presbitero

We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis takes particular note of theoretical arguments and data considerations in modelling the debt-growth relationship as heterogeneous across countries. We investigate the issue of nonlinearities (‘debt thresholds’) in both the cross- and within-country dimensions, employing novel approaches and diagnostics from the time-series literature adapted for use in the panel. Our findings suggest that whatever the shape and form of the debt-growth relationship, it differs across countries, so that appropriate policies for one country may be seriously misguided in another.

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File URL: http://www.nottingham.ac.uk/cfcm/documents/papers/13-10.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 2013/10.

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Date of creation: 2013
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Handle: RePEc:not:notcfc:13/10
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