Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions
We analyze how the impact of a change in the sovereign debt-to-GDP ratio on economic growth depends on the level of debt, the stress level on the financial market and the membership in a monetary union. A dynamic growth model is put forward demonstrating that debt affects macroeconomic activity in a non-linear manner due to amplifications from the financial sector. Employing dynamic country-specific and dynamic panel threshold regression methods, we study the non-linear relation between the growth rate and the debt-to-GDP ratio using quarterly data for sixteen industrialized countries for the period 1981Q1-2013Q2. We find that the debt-to-GDP ratio has impaired economic growth primarily during times of high financial stress and only for countries of the European Monetary Union and not for the stand-alone countries in our sample. A high debt-to-GDP ratio by itself does not seem to necessarily negatively affect growth if financial markets are calm.
Year of publication: |
2014-02
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Authors: | Proaño, Christian R. ; Schoder, Christian ; Semmler, Willi |
Institutions: | Vienna University of Economics and Business, Department of Economics |
Subject: | financial stress | sovereign debt | economic growth | dynamic panel threshold regression |
Saved in:
freely available
Extent: | application/pdf |
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Series: | |
Type of publication: | Book / Working Paper |
Notes: | PDF Document |
Classification: | E20 - Consumption, Saving, Production, Employment, and Investment. General ; G15 - International Financial Markets ; H63 - Debt; Debt Management |
Source: |
Persistent link: https://www.econbiz.de/10010743046