Public debt and economic growth: is there a causal effect?

This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.


Publication infos:
Ancona, MOFIR, 2012
Publication year:
2012
Number of pages:
47 p.
Collection:
MOFIR working paper ; no. 65



 Record created 2013-05-21, last modified 2018-01-28

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