Financial Stress and the Impact of Public Debt on UK Growth in High versus Low-Growth Regimes: 1850-2013
Using a long historical dataset, we estimate a Threshold Vector Autoregression (T-VAR) model for the UK based on a financial stress measure, the debt-to-GDP ratio, borrowing costs and real GDP growth. Our model allows for the impact of debt/GDP to vary between periods of high and low economic growth. We find that financial stress depresses growth much more in the low as opposed to the high-growth regime. We also find that positive shocks to debt/GDP depress economic growth and raise borrowing costs; again, the impact is much stronger when growth is low. This is an important finding as economists and policy-makers are currently debating whether it makes sense to proceed swiftly with fiscal consolidation when economic conditions remain weak.
|Date of creation:||Apr 2014|
|Date of revision:|
|Contact details of provider:|| Postal: Via Patara, 3, 47921 Rimini (RN)|
Web page: http://www.rcfea.org
More information through EDIRC
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.:
- James G. MacKinnon, 1995.
"Numerical Distribution Functions for Unit Root and Cointegration Tests,"
918, Queen's University, Department of Economics.
- MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
- Lof, Matthijs & Malinen, Tuomas, 2013.
"Does sovereign debt weaken economic growth? A Panel VAR analysis,"
52039, University Library of Munich, Germany.
- Lof, Matthijs & Malinen, Tuomas, 2014. "Does sovereign debt weaken economic growth? A panel VAR analysis," Economics Letters, Elsevier, vol. 122(3), pages 403-407.
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2010.
"Growth in a Time of Debt,"
11129154, Harvard University Department of Economics.
- Eric M. Engen & R. Glenn Hubbard, 2005. "Federal Government Debt and Interest Rates," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 83-160 National Bureau of Economic Research, Inc.
- Lawrence J. Christiano & Terry J. Fitzgerald, 2003.
"The Band Pass Filter,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band Pass Filter," NBER Working Papers 7257, National Bureau of Economic Research, Inc.
- Tom Doan, . "CFFILTER: RATS procedure to perform band pass filter using Christiano-Fitzgerald method," Statistical Software Components RTS00034, Boston College Department of Economics.
- Nathan S. Balke, 2000. "Credit and Economic Activity: Credit Regimes and Nonlinear Propagation of Shocks," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 344-349, May.
- Jaromír Baxa & Roman Horváth & Borek Vasícek, 2011.
"Monetary Policy Rules and Financial Stress: Does Financial Instability Matter for Monetary,"
wpdea1101, Department of Applied Economics at Universitat Autonoma of Barcelona.
- Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2013. "Time-varying monetary-policy rules and financial stress: Does financial instability matter for monetary policy?," Journal of Financial Stability, Elsevier, vol. 9(1), pages 117-138.
- Jaromir Baxa & Roman Horvath & Borek Vasicek, 2011. "Time-Varying Monetary-Policy Rules and Financial Stress: Does Financial Instability Matter for Monetary Policy?," Working Papers 2011/03, Czech National Bank, Research Department.
- Roman Horvath & Jaromir Baxa & Borek Vasicek, 2011. "How Does Monetary Policy Respond to Financial Stress?," EcoMod2011 2769, EcoMod.
- Baum, Anja & Checherita-Westphal, Cristina & Rother, Philipp, 2012.
"Debt and growth: new evidence for the euro area,"
Working Paper Series
1450, European Central Bank.
- Thomas Herndon & Michael Ash & Robert Pollin, 2013.
"Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff,"
wp322, Political Economy Research Institute, University of Massachusetts at Amherst.
- 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.
- Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2013. "Measuring financial stress in transition economies," Journal of Financial Stability, Elsevier, vol. 9(4), pages 597-611.
- Cardarelli, Roberto & Elekdag, Selim & Lall, Subir, 2011. "Financial stress and economic contractions," Journal of Financial Stability, Elsevier, vol. 7(2), pages 78-97, June.
- Pesaran, M. H. & Shin, Y., 1997.
"Generalised Impulse Response Analysis in Linear Multivariate Models,"
Cambridge Working Papers in Economics
9710, Faculty of Economics, University of Cambridge.
- Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"This Time Is Different: Eight Centuries of Financial Folly,"
Princeton University Press,
edition 1, volume 1, number 8973.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"Varieties of Crises and Their Dates
[This Time Is Different: Eight Centuries of Financial Folly]," Introductory Chapters, Princeton University Press.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
- Stephan Danninger & Irina Tytell & Ravi Balakrishnan & Selim Elekdag, 2009. "The Transmission of Financial Stress from Advanced to Emerging Economies," IMF Working Papers 09/133, International Monetary Fund.
- Bruneau, C. & de Bandt, O. & El Amri, W., 2012.
"Macroeconomic fluctuations and corporate financial fragility,"
Journal of Financial Stability,
Elsevier, vol. 8(4), pages 219-235.
- Catherine Bruneau & Olivier De Bandt & W. Elamri, 2012. "Macroeconomic Fluctuations and Corporate financial Fragility," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00666757, HAL.
When requesting a correction, please mention this item's handle: RePEc:rim:rimwps:13_14. 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: (Marco Savioli)
If references are entirely missing, you can add them using this form.