Debt

This paper proposes a new method to test for regime-dependent Granger causality in a cross-sectionally dependent panel data setting using vector autoregressive (VAR) models and seemingly unrelated regressions (SUR).

This paper offers a straightforward and descriptive contribution to the recent and busy debate on fiscal discipline made popular by the seminal Reinhart and Rogoff (2010; Growth in a time of debt. American Economic Review, vol. 100, no. 2, 573–78) paper. We find that with further hindsight, and from a time series perspective, there is little to no support for the view that higher levels of debt cause reductions in economic activity. In contrast to Reinhart and Rogoff (2010), we suggest that economic slumps tend to cause debt build-ups rather than vice versa.

This paper uses an empirical approach to test the specific causal relationship between debt and growth in the UK, in the context of the debate surrounding the use of a policy known as austerity measures. We find no evidence of a causal relationship between economic growth and public debt for the UK.