Debt and Growth: Is There a Magic Threshold?

20 Pages Posted: 11 Mar 2014

See all articles by Andrea Pescatori

Andrea Pescatori

Federal Reserve Bank of Cleveland

Damiano Sandri

International Monetary Fund (IMF) - Research Department

John Simon

International Monetary Fund (IMF)

Date Written: February 2014

Abstract

Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.

Keywords: Public debt, Economic growth, Economic models, Sovereign debt, gdp growth, debt thresholds, debt ratio, growth rate, growth rates, real gdp, government debt, debt overhangs, debt data, debt ratios, debt dynamics, low debt, reserve bank, public sector debt, currency debt, debt database, stock of debt, debt management, foreign currency debt, gdp growth rate

JEL Classification: H63, O40

Suggested Citation

Pescatori, Andrea and Sandri, Damiano and Simon, John, Debt and Growth: Is There a Magic Threshold? (February 2014). IMF Working Paper No. 14/34, Available at SSRN: https://ssrn.com/abstract=2407527

Andrea Pescatori (Contact Author)

Federal Reserve Bank of Cleveland ( email )

1455 E 6th ST
Cleveland, OH 44114
United States

HOME PAGE: http://clevelandfed.org/Research/Economists/index.cfm?action=ShowAuthorPubs&author=676&pagetype=6

Damiano Sandri

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

John Simon

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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