The Janus-Faced Nature of Debt: Results from a Data-Driven Cointegrated SVAR Approach

24 Pages Posted: 23 Jan 2017

See all articles by Mattia Guerini

Mattia Guerini

University of Brescia - Department of Economics and Management; GREDEG CNRS; Scuola Superiore Sant'Anna di Pisa

Alessio Moneta

Institute of Economics, Sant'Anna School of Advanced Studies

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); Observatoire Français des Conjonctures Economiques (OFCE); SKEMA Business School; Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM); Observatoire Français des Conjonctures Economiques (OFCE)

Date Written: January 20, 2017

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, Independent Component Analysis, SVAR Identification

JEL Classification: E32, E62, C58, H63

Suggested Citation

Guerini, Mattia and Moneta, Alessio and Napoletano, Mauro and Roventini, Andrea, The Janus-Faced Nature of Debt: Results from a Data-Driven Cointegrated SVAR Approach (January 20, 2017). Available at SSRN: https://ssrn.com/abstract=2903143 or http://dx.doi.org/10.2139/ssrn.2903143

Mattia Guerini (Contact Author)

University of Brescia - Department of Economics and Management ( email )

Via S. Faustino 74/b
Brescia
Italy

GREDEG CNRS ( email )

Sophia-Antipolis
France

Scuola Superiore Sant'Anna di Pisa ( email )

Pisa, 56127
Italy

Alessio Moneta

Institute of Economics, Sant'Anna School of Advanced Studies ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa, PI
Italy
56127 (Fax)

HOME PAGE: http://https://mail.sssup.it/~amoneta/

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

60, rue Dostoïevski
Sophia-Antipolis Cedex, 06902
France

HOME PAGE: http://www.ofce.sciences-po.fr

SKEMA Business School ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75004
France

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