Exploring the linkage between debt and growth: a wavelet analysis
Keywords:
Government Debt, Growth, Wavelets
Abstract
In this paper, we investigate the relationship between public debt (ratio to GDP) and real per capita GDP growth for the US and seven Eurozone countries. By using the Wavelet Coherence tools associated with Continuous Wavelet Transform, we analyze the lead-lag relationship between the series over short term and long term frequency bands. Overall, we do not find evidence of a negative effect of debt on growth.
References
Aguiar-Conraria, L. and M.J. Soares (2014), The Continuous Wavelet Transform: Moving Beyond Uni and Bivariate Analysis, Journal of Economic Surveys, 28: (2) 344–375.
Aguiar-Conraria, L., N.Azevedo and M.J. Soares (2008), Using Wavelet to Decompose the Time-Frequency Effects of Monetary Policy, Physica A, 387: 2863–2878.
Baum, A., Checherita-Westphal, C. and P.Rother (2013), Debt and growth: New evidence for the euro area, Journal of International Money and Finance, 32(C) 809–821.
Berenguer-Rico, V., and J. Gonzalo (2013), Summability of stochastic processes: a generalization of integration and cointegration valid for non linear processes, Journal of econometrics, 178(2) 331-341.
Cecchetti, S. G., M. S. Mohanty and and F. Zampolli (2011), The Real Effectsof Debt, BIS Working Papers,/ 352.
Cochrane, J.H. (2011), Understanding policy in great recessions: some unpleasant fiscal arithmetic, European Economic Review, 55(1), 2–30.
Daubechies, I., (1992), ıTen Lectures on Wavelets, Society for Industrial and Applied Mathematics, Philadelphia. Daubechies, I., (1988), Orthonormal Bases of Compactly Supported Wavelets, Communications in Pure and Applied Mathematics, 41, 909–996.
Eberhardt, M., (2015), Nonlinearities in the relationship between debt and growth: (no) evidence from over two centuries, Centre for Finance, Credit and Macroeconomics, School of Economics, University of Nottingham.
Egert, B., (2015), Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality?, Journal of Macroeconomics, 43: 226–238. Goupillaud, P.,
Grossman A., and J. Morlet (1984), Cycle-Octave and Related Transforms in Seismic Signal Analysis, Geoexploration, 23: 85–102.
Grinsted A., Moore j., and S. Jevrejeva (2004), Application of the Cross Wavelet Transform and Wavelet Coherence to Geophysical Time Series, Non-linear Processes in Geophysics 11 (5/6): 561-–566.
Maraun, D. and J. Kurths, (2204), Cross Wavelet Analysis: Significance Testing and Pitfalls,Nonlinear Processes in Geophysics, 11: 505—514.
Mihanovic, H., Orlic M. and Z. Pasric (2009), Diurnal Thermocline Oscillations driven by Tidal FlowApplication of the Cross Wavelet Trans Around an Island in the Middle Adriatic, Journal of Marine Systems 78: S157-–S168.
Panizza,U. and A.F. Presbitero (2014), Public debt and economic growth: Is there a causal effect?, Journal of Macroeconomics, 41, 21-–41.
Pescatori, A.; Sandri, D. and John Simon (2014), Debt and growth: is there a magic threshold?, IMF working paper, 14/34.
Reinhart, C. and K.Rogoff (2010), Growth in a time of debt, American Economic Review, 100(2), 573–578
Aguiar-Conraria, L., N.Azevedo and M.J. Soares (2008), Using Wavelet to Decompose the Time-Frequency Effects of Monetary Policy, Physica A, 387: 2863–2878.
Baum, A., Checherita-Westphal, C. and P.Rother (2013), Debt and growth: New evidence for the euro area, Journal of International Money and Finance, 32(C) 809–821.
Berenguer-Rico, V., and J. Gonzalo (2013), Summability of stochastic processes: a generalization of integration and cointegration valid for non linear processes, Journal of econometrics, 178(2) 331-341.
Cecchetti, S. G., M. S. Mohanty and and F. Zampolli (2011), The Real Effectsof Debt, BIS Working Papers,/ 352.
Cochrane, J.H. (2011), Understanding policy in great recessions: some unpleasant fiscal arithmetic, European Economic Review, 55(1), 2–30.
Daubechies, I., (1992), ıTen Lectures on Wavelets, Society for Industrial and Applied Mathematics, Philadelphia. Daubechies, I., (1988), Orthonormal Bases of Compactly Supported Wavelets, Communications in Pure and Applied Mathematics, 41, 909–996.
Eberhardt, M., (2015), Nonlinearities in the relationship between debt and growth: (no) evidence from over two centuries, Centre for Finance, Credit and Macroeconomics, School of Economics, University of Nottingham.
Egert, B., (2015), Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality?, Journal of Macroeconomics, 43: 226–238. Goupillaud, P.,
Grossman A., and J. Morlet (1984), Cycle-Octave and Related Transforms in Seismic Signal Analysis, Geoexploration, 23: 85–102.
Grinsted A., Moore j., and S. Jevrejeva (2004), Application of the Cross Wavelet Transform and Wavelet Coherence to Geophysical Time Series, Non-linear Processes in Geophysics 11 (5/6): 561-–566.
Maraun, D. and J. Kurths, (2204), Cross Wavelet Analysis: Significance Testing and Pitfalls,Nonlinear Processes in Geophysics, 11: 505—514.
Mihanovic, H., Orlic M. and Z. Pasric (2009), Diurnal Thermocline Oscillations driven by Tidal FlowApplication of the Cross Wavelet Trans Around an Island in the Middle Adriatic, Journal of Marine Systems 78: S157-–S168.
Panizza,U. and A.F. Presbitero (2014), Public debt and economic growth: Is there a causal effect?, Journal of Macroeconomics, 41, 21-–41.
Pescatori, A.; Sandri, D. and John Simon (2014), Debt and growth: is there a magic threshold?, IMF working paper, 14/34.
Reinhart, C. and K.Rogoff (2010), Growth in a time of debt, American Economic Review, 100(2), 573–578
Published
2020-07-24
Section
Economics
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
