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The predictive content of public debt for real output expansions and contractions over three centuries: A Markov switching analysis for the UK

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  • Karfakis, Ioannis

Abstract

This paper examines the relationship between public debt and real output in the UK during the last three centuries to identify changes in the historical growth rates of real output, to understand the asymmetric behavior over real output expansions and contractions, and to consider whether the growth rate of the debt-to-GDP ratio is a leading indicator of the time-varying transition probabilities between expansions and contractions. The Markov switching analysis showed that changes in the debt-to-GDP ratio have predictive content for real output expansions with a negative sign and constitute a leading indicator of the transition probabilities across the two regimes.

Suggested Citation

  • Karfakis, Ioannis, 2021. "The predictive content of public debt for real output expansions and contractions over three centuries: A Markov switching analysis for the UK," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    • Handle: RePEc:eee:joecas:v:24:y:2021:i:c:s1703494921000104
    DOI: 10.1016/j.jeca.2021.e00205
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    More about this item

    Keywords

    Public debt; Output growth; Asymmetric behavior; Predictive content; Markov switching; Time-varying probabilities;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H - Public Economics

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