Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions

Christian Proaño, Christian Schoder and Willi Semmler

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: 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.

Keywords: financial stress; sovereign debt; economic growth; dynamic panel threshold regression (search for similar items in EconPapers)
JEL-codes: E20 G15 H63 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-gro, nep-mac and nep-opm
Note: PDF Document
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

Downloads: (external link)
https://epub.wu.ac.at/4085/1/wp167.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (https://epub.wu.ac.at/4085/1/wp167.pdf [302 FOUND]--> https://research.wu.ac.at/en/publications/e07b837a-b365-4a60-ac75-af34dcdca0eb)

Related works:
Journal Article: Financial stress, sovereign debt and economic activity in industrialized countries: Evidence from dynamic threshold regressions (2014)
Working Paper: Financial Stress, Sovereign Debt, and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions (2014)
Working Paper: Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwwuw:wuwp167

Access Statistics for this paper

More papers in Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by Department of Economics ().