Schoder, C., Proano, C. and Semmler, W., (2013), “The Role of Financial Stress in the Sovereign Debt-Output Nexus, and in Economic Activity”, EconoMonitor, 18 Νοεμβρίου.
Since the outbreak of the euro area crisis, the link between a country’s macroeconomic performance and the level of its sovereign debt has become a central topic in the economic debate. Now, the recent showdown in the U.S. Congress over raising the country’s debt ceiling has made this issue central once again, not only for the U.S, but also for the world’s economic prospects. However, in contrast to previous episodes where the policy recommendations were drawn from linear theoretical models and estimation techniques such as Blanchard and Perotti (2002), the majority of the profession now acknowledges the complexity of this linkage and has begun to analyze the macroeconomic impact of fiscal policy and sovereign debt, and their subsequent feedback mechanisms, from a state- or regime-dependent perspective.
For some time, and primarily on the basis of Reinhart and Rogoff (2010), most of the debate focused on the existence of a certain debt-to-GDP ratio beyond which a country would likely experience a severe economic downturn. However, it is nowadays widely acknowledged that Reinhart and Rogoff (2010) hypothesis is not strongly supported by empirical data, see e.g. Herndorn et al. (2013). In contrast, the most recent strand of the literature has focused on the financial-market stress as an alternative threshold variable affecting the link between a country’s fiscal stance, and its macroeconomic performance (cf. Afonso et al. (2011) and Mittnik and Semmler 2012). Afonso et al. (2011) and Mittnik and Semmler (2013), for instance, argue that the main factor determining the effectiveness of fiscal policy as well as the sustainability of fiscal debt is the state of the financial markets and not the extent of public indebtedness itself, as postulated by Reinhart and Rogoff (2010).
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Σχετικές Αναρτήσεις
- Herndon, Thomas, Ash, Michael & Pollin, Robert, (2013), “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff”, Political Economy Research Institute, Working Paper 322.
- Eberhardt, M. and Presbitero, A., (2013), “Public debt and economic growth: There is no ‘tipping point’”, VoxEU, 17 Νοεμβρίου.
- Kirkegaard, J.F., (2013), “Economic Reforms in the Euro Area: Fiscal and Macro-structural Challenges”, European Parliament’s Committee on Economic and Monetary Affairs, Σεπτέμβριος.