Finding the Tipping Point: When Sovereign Debt Turns Bad

Caner, Mehmet; Grennes, Thomas; Koehler-Geib, Fritzi

doi:10.1596/9780821384831_ch03

Cited by 49 publications

(50 citation statements)

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“…This is also graphically shown in Figure 2 (B and B′). This result supports the argument that countries with better institutions, that is, PSM, have (and deserve) higher public debt sustainability targets compared with those with weaker institutions (Reinhart et al, 2003;Caner et al, 2010;Cordella et al, 2010).…”

Section: Results From Non-linearity ("Inverse-u") Testsupporting

confidence: 83%

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Megersa

Cassimon

2015

Public Admin. Dev.

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The article investigates whether differences in public sector management quality affect the link between public debt and economic growth in developing countries. For this purpose, we primarily use the World Bank's institutional indices of public sector management (PSM). Using PSM thresholds, we split our panel into country clusters and make comparisons. Our linear baseline regressions reveal a significant negative relationship between public debt and growth. The various robustness exercises that we perform also confirm these results. When we dissect our data set into "weak" and "strong" county clusters using public sector management scores, however, we find different results. While public debt still displayed a negative relationship with growth in countries with "weak" public sector management quality, it generally displayed a positive relationship in the latter group.The tests for non-linearity shows evidence of an "inverse-U"-shape relationship between public debt and economic growth. However, we fail to see a similar significant relationship on country clusters that account for PSM quality. Yet, countries with wellmanaged public sectors demonstrate a higher public debt sustainability threshold.

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Section: Results From Non-linearity ("Inverse-u") Testsupporting

confidence: 83%

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Megersa

Cassimon

2015

Public Admin. Dev.

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“…The thresholding parameter C is always chosen among the lowest values in the search grid, this nonetheless results in between 1 and 3 extra parameters being discarded compared to the scaled Lasso. A threshold ( τ ) for the effect of government debt on growth is found at between 60% and 80% of GDP, consistent with the findings of Cecchetti et al (2012); Reinhart and Rogoff (2010); Caner et al (2010); Baum et al (2013).…”

Section: Resultssupporting

confidence: 89%

Sharp Threshold Detection Based on Sup-Norm Error Rates in High-Dimensional Models

Callot

Caner

Kock

et al. 2017

Journal of Business & Economic Statistics

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We propose a new estimator, the thresholded scaled Lasso, in high dimensional threshold regressions. First, we establish an upper bound on the ℓ ∞ estimation error of the scaled Lasso estimator of Lee et al. (2012). This is a non-trivial task as the literature on high-dimensional models has focused almost exclusively on ℓ 1 and ℓ 2 estimation errors. We show that this supnorm bound can be used to distinguish between zero and non-zero coefficients at a much finer scale than would have been possible using classical oracle inequalities. Thus, our sup-norm bound is tailored to consistent variable selection via thresholding.Our simulations show that thresholding the scaled Lasso yields substantial improvements in terms of variable selection. Finally, we use our estimator to shed further empirical light on the long running debate on the relationship between the level of debt (public and private) and GDP growth.

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“…): Caner et al . () in 79 developed and developing countries for 1980–2008; Checherita and Rother () in 12 Euro economies for 1970–2008; Cecchetti et al . () in 18 OECD countries for 1980–2005; Balassone et al .…”

Section: Introductionmentioning

confidence: 99%

“…While the results tend to vary depending on the regression methods, specifications and samples (countries and periods), many of these studies find a strikingly similar range of impact magnitude: on average, a 10 percentage point increase in the debt‐to‐GDP ratio is associated with a decline in annual growth of around 0.1–0.2 percentage points per year (see, among others, Kumar and Woo ; Caner et al . ; Cecchetti et al . ; Balassone et al .…”

Section: Introductionmentioning

confidence: 99%

Public Debt and Growth

2015

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The recent global financial crisis has led to an unprecedented increase in public debt across the world, raising serious concerns about its economic impact. This paper examines the impact of high public debt on long-run economic growth in a large panel of countries over the last four decades. High initial public debt is found to be significantly associated with slower subsequent growth. Non-linearities, currency denomination of debt and differences between advanced and emerging market economies are explored. The adverse effect largely reflects a slowdown in labour productivity growth mainly due to slower capital accumulation. Extensive robustness checks confirm the results.

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Finding the Tipping Point: When Sovereign Debt Turns Bad

Cited by 49 publications

References 1 publication

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link?

Sharp Threshold Detection Based on Sup-Norm Error Rates in High-Dimensional Models

Public Debt and Growth

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