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The Janus-faced nature of debt: result from a data-driven cointegrated SVAR approach

Mattia Guerini, Alessio Moneta (), Mauro Napoletano () and Andrea Roventini ()

No 2017-02, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: In this paper, we investigate the causal effects of public and private debts on U.S. output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on GDP, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run.

Keywords: Public and private debt; Business cycle fluctuations; Independant component analysis; SVAR identifications (search for similar items in EconPapers)
JEL-codes: E32 E62 C58 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017-01
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Related works:
Working Paper: The Janus face nature of debt: results from a data-driven cointegrated SVAR approach (2018) Downloads
Working Paper: The Janus-Faced Nature of Debt: Results from a Data-Driven Cointegrated SVAR Approach (2017) Downloads
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