Public debt and growth in the euro area: evidence from parametric and nonparametric Granger causality
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Silvestro Di Sanzo
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Mariano Bella
Abstract
Many studies in the empirical literature show that public debt is negatively correlated with economic growth but there is no paper that studies the causal links between these variables using rigorous tests based on Granger’s ideas. Accordingly, we investigate the causal links between debt-to-GDP ratio and economic growth using both linear parametric and nonlinear nonparametric Granger causality tests. We focus on 12 euro countries for the period 1970–2012. Our empirical results suggest a unidirectional causality running from debt to economic growth for Spain and Portugal and a bidirectional causality for Belgium, Germany, Greece, Ireland and Italy. No causality in either direction is identified for Austria, Finland, Luxembourg and the Netherlands. Finally, for France, the tests provide evidence for a unidirectional causality running from GDP growth to debt-to-GDP ratio. In addition, the nonlinear tests indicate that overlooking nonlinearities may result in misleading conclusions about Granger causality. Caveats of the analysis, as well as policy conclusions, are also discussed.
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©2015 by De Gruyter
Artikel in diesem Heft
- Frontmatter
- Advances
- International specialization and the return to capital
- How the wage-education profile got more convex: evidence from Mexico
- Contributions
- Africa’s missed agricultural revolution: a quantitative study of the policy options
- Structural transformation and productivity in Latin America
- Public debt and growth in the euro area: evidence from parametric and nonparametric Granger causality
- Transition dynamics in the neoclassical growth model: the case of South Korea
- Household saving in Australia
- An ordered probit analysis of monetary policy inertia
- Fiscal shocks, the real exchange rate and the trade balance: some evidence for emerging economies
- Topics
- Remittances and financial institutions: is there a causal linkage?
- Club convergence in Latin America
Artikel in diesem Heft
- Frontmatter
- Advances
- International specialization and the return to capital
- How the wage-education profile got more convex: evidence from Mexico
- Contributions
- Africa’s missed agricultural revolution: a quantitative study of the policy options
- Structural transformation and productivity in Latin America
- Public debt and growth in the euro area: evidence from parametric and nonparametric Granger causality
- Transition dynamics in the neoclassical growth model: the case of South Korea
- Household saving in Australia
- An ordered probit analysis of monetary policy inertia
- Fiscal shocks, the real exchange rate and the trade balance: some evidence for emerging economies
- Topics
- Remittances and financial institutions: is there a causal linkage?
- Club convergence in Latin America
