Private and public debt convergence: a fractional cointegration approach

Maria Malmierca-Ordoqui (maria.malmierca@villanueva.edu), Luis Gil-Alana and Lorenzo Bermejo
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Maria Malmierca-Ordoqui: Universidad Villanueva
Lorenzo Bermejo: Universidad Villanueva

Empirica, 2024, vol. 51, issue 1, No 6, 183 pages

Abstract: Abstract The devastating effects of the financial and economic recessions within the last two decades have led researchers to question whether there is a connection between the public and private financial sectors that contributes to the rapid propagation of crisis. We analyze the fractional cointegrating structure between the private and public debt-to-GDP ratios for 17 European countries to examine the relevance of this relationship as an amplification channel of shocks. On the one hand, the univariate fractional integration approach reveals that shocks have permanent effects on financial variables in all the countries considered. On the other hand, we find that the number of countries for which private and public debt are cointegrated increase after the Great Recession.

Keywords: Private credit; Public debt; Persistence; Fractional cointegration (search for similar items in EconPapers)
JEL-codes: C22 C32 G51 H63 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10663-023-09594-9

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