International Co-Movements and Determinants of Public Debt

59 Pages Posted: 7 Jul 2020 Last revised: 13 Jul 2020

See all articles by Hasan Isomitdinov

Hasan Isomitdinov

The University of Alabama

Vladimir Arcabic

University of Zagreb - Faculty of Economics & Business

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies

Youngjin Yun

Bank of Korea - Economic Research Institute

Date Written: July 1, 2020

Abstract

English Abstract: This paper provides evidence of significant international co-movements of public debt in the form of the common global and regional factors. International events such as the global financial crisis and regional sovereign debt crises suggest the existence of global and regional factors that can generate synchronizations of public debt across different countries. In contrast with previous studies that are focused mostly on domestic economic fundamentals in explaining public debt, this paper finds distinct global factors in the public debt-to-GDP ratio, both from principal components analysis and the Bayesian dynamic factor model. We show that the global factor accounts for a significant fraction of the variation of public debt often more substantial than those explained by domestic variables in many countries. We also find significant regional factors in public debt, especially for the Eurozone member states.

Keywords: Public Debt, Co-Movements, Dynamic Factor Model, Bayesian Estimation

JEL Classification: C33, C38, E63, H63

Suggested Citation

Isomitdinov, Hasan and Arcabic, Vladimir and Lee, Junsoo and Yun, Youngjin, International Co-Movements and Determinants of Public Debt (July 1, 2020). Bank of Korea WP 2020-15, Available at SSRN: https://ssrn.com/abstract=3640087 or http://dx.doi.org/10.2139/ssrn.3640087

Hasan Isomitdinov (Contact Author)

The University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Vladimir Arcabic

University of Zagreb - Faculty of Economics & Business ( email )

Trg J. F. Kennedyja 6
Zagreb, 10000
Croatia

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL Alabama 35487
United States
2053488978 (Phone)

Youngjin Yun

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

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