Debt, Inflation and Growth Robust Estimation of Long-Run Effects in Dynamic Panel Data Models

Chudík, Alexander; Mohaddes, Kamiar; Pesaran, M. Hashem; Raissi, Mehdi

doi:10.24149/gwp162

Cited by 68 publications

(60 citation statements)

References 36 publications

(47 reference statements)

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“…The presence of heterogeneity does not necessarily mean that there is not additionally an overall effect when that heterogeneity is controlled out (e.g. see Chudik et al, 2013 2 ), but clearly there is strong theoretical and empirical evidence to suggest that the possibility of varying relations between debt and growth is justified.…”

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confidence: 99%

Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth

Bell¹,

Johnston²,

Jones³

2014

Journal of Economic Geography

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This paper reanalyses data used by Reinhart and Rogoff (2010c -RR), and later Herndon et al. (2013) to consider the relationship between growth and debt in developed countries. The consistency over countries and the causal direction of RR's so called 'stylised fact' is considered. Using multilevel models, we find that when the effect of debt on growth is allowed to vary, and linear time trends are fully controlled for, the average effect of debt on growth disappears, whilst country-specific debt relations vary significantly. Additionally, countries with high debt levels debt appear more volatile in their growth rates. Regarding causality, we develop a new method extending distributed lag models to multilevel situations.These models suggest the causal direction is predominantly growth-to-debt, and is consistent (with some exceptions) across countries. We argue that RR's findings are too simplistic, with limited policy relevance, whilst demonstrating how multilevel models can explicate realistically complex scenarios.

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confidence: 99%

Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth

Bell¹,

Johnston²,

Jones³

2014

Journal of Economic Geography

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“…See alsoChudik et al (2013Chudik et al ( , 2016Chudik et al ( , 2017 for a discussion of the estimation of long-run or level relationships in economics as well as a discussion of the relative merits of the CS-ARDL approach and other existing approaches in the literature.…”

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Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers

El-Anshasy

Mohaddes

Nugent

2017

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This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961-2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.

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“…Even if it is not the most efficient estimator for panels with a short cross-sectional dimension (for instance, the Blundell and Bond (1998) estimator is more efficient), it is the one that had the best fitting and result in the diagnostic tests among the estimators generally used in the literature (Anderson Hsiao 1982, Aurellano Bond 1991, Blundell Bond 1998. Nevertheless, in small samples (with a time dimension shorter than 30 periods) the estimations would be weakly biased (Chudik, Mohaddes, Pesaran and Raissi 2013;Juessen and Linneman 2010;Judson and Owen 1999), that must be taken into account when discussing the results.…”

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The Effects of Fiscal Policy on Employment: An Analysis of the Aggregate Evidence

Tafuro

2015

SSRN Journal

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Th i s s tud y i nve s ti gat e s w he t her f i scal p olic y is abl e t o affec t t he tre nd of emp l oy me n t r a te , t r i gge r in g hy ste res is i nd e pe nd e nt ly fr o m GDP be h avi or . I atte m p t t o s he d a l ig h t o n th i s is sue a na ly zi n g a Pa nel of 17 O EC D cou n tr ie s, c o ve r i n g t he pe r i od 198 0 -200 9 w it h a n nual d a ta . T he ef fect s of fisc al p o lic y ar e e s ti ma te d wit h a S VA R, w here t he ex o gen ou s fi sca l s h oc k is id e n ti fie d e mp l oy i n g a r e cen t d at ase t pr ov id e d by t he I MF, c o n tai ni n g pre d e te r m i ne d f i sc al po l ic y c ha n ges d ue t o fi sca l c o ns o lid a ti o n i ss ues . My resul t s su g ge st th at a f is c al s h ock ca n mod ify th e emp l oyme n t equi li br iu m leve l e ve n wi t h out i nf lu e nc i n g p ote n ti al ou t put . T he fi sca l mul ti pl ier f or th e e m pl oy me n t r ate tr e nd afte r t wo year s i s -0. 55 a nd acc ou n ts f or al m o st hal f o f t he mul ti p lie r f or ove r all e m pl oy me nt ra te (w h ic h i s -1 .1 0) , w hil e i s -0. 11 -a nd n o t s ig n ific an t -for t he p o te nt ial ou tp ut . T he m ul ti pl ier f or th e r e al p e r c a pi ta G DP i s -1 .04 , w hic h s h arp ly c o ntr as t s wi t h t he "ex pa n si o nar y aus te r ity " hy p o t he si s. Var i ou s exte n si o n s are pre se nt e d , co ns id e r in g t he r o le of co m p os it i o n, m o ne tary p o licy , a nd s ta ted epe nd e nc y . S pe nd in g c ut s affec t em p l oy me nt mo re t ha n ta x i ncrea se s, w hi le ta x e ffe c ts ar e lar ge r o n rea l pe r cap it a G DP. Su ch a re sul t m ay b e exp lai ne d by d if fe r e nt r e act io n s of m o net ar y p ol icy. T he e vid e nc e ad voc ate s t ha t the m ult ip lier i s s tate -d e pe n d en t, i.e . lar ger d ur i n g rec e s si o n s, an d suc h e ffe c t i s s tr on ger o n e m pl oy men t tre nd . Keywords AbstractThis study investigates whether fiscal policy is able to affect the trend of employment rate, triggering hysteresis independently from GDP behavior. I attempt to shed a light on this issue analyzing a Panel of 17 OECD countries, covering the period 1980-2009 with annual data. The effects of fiscal policy are estimated with a SVAR, where the exogenous fiscal shock is identified employing a recent dataset provided by the IMF, containing predetermined fiscal policy changes due to fiscal consolidation issues. My results suggest that a fiscal shock can modify the employment equilibrium level even without influencing potential output. The fiscal multiplier for the employment rate trend after two years is -0.55 and accounts for almost half of the multiplier for overall employment rate (which is -1.10), while is -0.11 -and not significant -for the potential output. The multiplier for the real per capita GDP is -1.04, which sharply contrasts with the "expansionary austerity" hypothesis. Various extensions are presented, considering the role of composition, monetary policy, and state-dependency. Spending ...

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Debt, Inflation and Growth Robust Estimation of Long-Run Effects in Dynamic Panel Data Models

Cited by 68 publications

References 36 publications

Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth

Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth

Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers

The Effects of Fiscal Policy on Employment: An Analysis of the Aggregate Evidence

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