CFCM 13/06: Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing

Abstract

We employ novel time series methods to investigate the presence of nonlinearities in the long-run relationship between public debt and growth. Analysing over two centuries of data for the United States, Great Britain, Sweden and Japan we find very limited evidence for nonlinear long-run relationships in these countries and further cannot support the notion that their equilibrium debtgrowth relationship is identical. Both results weaken the case for a common 90% or indeed any common debt-to-GDP threshold recently popularised by the work of Reinhart and Rogoff (2010b) and others.

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Authors

Markus Eberhardt

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