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1 results

  • THE JANUS-FACED NATURE OF DEBT: RESULTS FROM A DATA-DRIVEN COINTEGRATED SVAR APPROACH

  • Mattia Guerini, Alessio Moneta, Mauro Napoletano, Andrea Roventini
  • Journal:
    Macroeconomic Dynamics / Volume 24 / Issue 1 / January 2020
    Published online by Cambridge University Press:
    01 August 2018, pp. 24-54

  • In this paper, we investigate the causal effects of public and private debts on US 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 gross domestic product, 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.