Debt and Growth: Is There a Magic Threshold?

By Andrea Pescatori, Damiano Sandri, John Simon

February 13, 2014

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Format: Chicago

Andrea Pescatori, Damiano Sandri, and John Simon. Debt and Growth: Is There a Magic Threshold?, (USA: International Monetary Fund, 2014) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.

Subject: Econometric analysis, Public debt, Threshold analysis

Keywords: Country peer, Debt threshold, Debt trajectory, GDP ratio, GDP volatility, Growth, Growth rate, Output volatility, Sovereign debt, Threshold analysis, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/034
Stock No:

WPIEA2014034
ISBN:

9781484306444
ISSN:

1018-5941

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