The Relationship Between Debt and Output

Yun Jung Kim and Jing Zhang

IMF Economic Review, 2021, vol. 69, issue 1, No 8, 230-257

Abstract: Abstract We empirically investigate the dynamic relationship between debt and output in a panel of 72 countries over the period 1970–2014 using a vector autoregression. We document two puzzling empirical findings that contrast with what is predicted by a standard small open economy model by Aguiar and Gopinath (J Polit Econ 115(1):69–102, 2007), where debt and output endogenously respond to total factor productivity shocks. First, developing countries’ debt falls after a positive output shock, while the model predicts a debt expansion. Second, output declines in developed and developing countries after a debt shock, while the model predicts higher output. The relationship between debt and output depends on the sector taking on debt (households, firms, or governments) and the source of financing (domestic versus external) and differs across countries with varying degrees of economic development or different exchange rate regimes.

Keywords: Public debt; Household debt; Firm debt; Foreign debt (search for similar items in EconPapers)
JEL-codes: F34 F41 G32 G51 H63 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/s41308-020-00132-2 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Relationship between Debt and Output (2020)
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:pal:imfecr:v:69:y:2021:i:1:d:10.1057_s41308-020-00132-2

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

DOI: 10.1057/s41308-020-00132-2

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().