This paper investigates the degree of persistence of the private debt-to-GDP ratio in 43 OECD countries by estimating the fractional integration parameter of each series. Almost all of them are found to be highly persistent, with orders of integration around or above 1. The only exception is Argentina, where the series appears to be mean-reverting. These results highlight the key importance of macroprudential policy as one of the pillars of macro policy.
PurposeIn particular, in this article, the authors investigate the degree of persistence in the credit-to-gross domestic product (GDP) ratio in 44 Organisation for Economic Co-operation and Development (OECD) economies in the context of nonlinear deterministic trends.Design/methodology/approachThe authors use Chebyshev's polynomials in time, which allow us to model changes in the data in a smoother way than by structural breaks.FindingsThis study’s results indicate that approximately one-quarter of the series display non-linear structures, and only Argentina displays a mean reverting pattern.Research limitations/implicationsPolicy implications of the results obtained are discussed at the end of the manuscript.Originality/valueThe authors use an approach developed that allows for non-linear trends based on Chebyshev polynomials in time, with the residuals being fractionally integrated or integrated of order d, where d can be any real value.
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