2017/04 | LEM Working Paper Series | ||||||||||||||||
The Janus-Faced Nature of Debt: Results from a Data-Driven Cointegrated SVAR Approach |
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Mattia Guerini, Alessio Moneta, Mauro Napoletano and Andrea Roventini |
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Keywords | |||||||||||||||||
Public and Private Debt, Business Cycle Fluctuations, Independent Component Analysis, SVAR Identification
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JEL Classifications | |||||||||||||||||
E32, E62, C58, H63
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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.
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