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. (authors' abstract)
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:4522 |
| Date | 05 March 2014 |
| Creators | Proaño, Christian R., Schoder, Christian, Semmler, Willi |
| Publisher | Elsevier |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Article, PeerReviewed |
| Format | application/pdf |
| Relation | http://dx.doi.org/10.1016/j.jimonfin.2014.02.005, http://www.sciencedirect.com/science/article/pii/S0261560614000308, http://epub.wu.ac.at/4522/ |
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