Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/174554 
Year of Publication: 
2017
Series/Report no.: 
LEM Working Paper Series No. 2017/04
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
In this paper, we investigate the causal effects of public and private debts on U.S. 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 GDP, 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.
Subjects: 
Public and Private Debt
Business Cycle Fluctuations
Independent Component Analysis
SVAR Identification
JEL: 
E32
E62
C58
H63
Document Type: 
Working Paper

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