Sovereign debt and the length of economic depressions

Minjie Guo and John McDermott

Economic Modelling, 2020, vol. 90, issue C, 79-91

Abstract: We analyze the duration of economic depressions to see if there is an association with consecutive years of high public-debt-to-GDP ratios. We find that there is a positive, non-linear association between the sovereign debt ratio and the length of depressions. Inflation is negatively and linearly correlated with depression duration. These associations are robust to the inclusion of controls for development, but we do detect cross-country heterogeneity in the probability of exit. An analysis of causality finds little evidence that high levels of sovereign debt cause depressions to be longer. Rather, it appears that longer depressions elicit higher debt relative to GDP. Public deleveraging during a depression is not likely, therefore, to help bring it to an end.

JEL-codes: E32 E62 O47 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:90:y:2020:i:c:p:79-91

DOI: 10.1016/j.econmod.2020.03.024

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