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

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  • Markus Eberhardt
  • Andrea F. Presbitero
Abstract
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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  • Markus Eberhardt & Andrea F. Presbitero, 2013. "This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth," Discussion Papers 2013/10, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:13/10
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    More about this item

    Keywords

    economic growth; public debt; common factor model; nonlinearity; summability; balance and co-summability; asymmetric ARDL;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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