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Spillover effects of debt and growth in the euro area: Evidence from a GVAR model

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  • Kempa, Bernd
  • Khan, Nazmus Sadat

Abstract

This paper employs a global vector autoregression model to analyze two-way spillover effects of public debt and growth between Germany as the largest economy of the euro zone and its core and periphery groups of countries. Using quarterly data over the period 1991Q1-2014Q4, we find that positive growth shocks originating in any of the three entities spill over into higher growth rates in the other regions of the euro area, and also reduce debt levels at least transitorily in all regions. In contrast, debt shocks exert no significant impact on the growth dynamics across the euro zone, but spill over to the debt levels of the other regions through increases in real interest rates, particularly for shocks emanating from the euro area core and periphery.

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  • Kempa, Bernd & Khan, Nazmus Sadat, 2017. "Spillover effects of debt and growth in the euro area: Evidence from a GVAR model," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 102-111.
    • Handle: RePEc:eee:reveco:v:49:y:2017:i:c:p:102-111
    DOI: 10.1016/j.iref.2017.01.024
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    Cited by:

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    2. Khamdan Rifa'i, 2023. "The Economic Impact of the US Unconventional Monetary Policy, Global Commodity Shocks, and Oil Price Shocks on ASEAN 3," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 616-624, September.
    3. Hussain, Muzzammil & Ye, ZhiWei & Usman, Muhammad & Mir, Ghulam Mustafa & Usman, Ahmad & Abbas Rizvi, Syed Kumail, 2020. "Re-investigation of the resource curse hypothesis: The role of political institutions and energy prices in BRIC countries," Resources Policy, Elsevier, vol. 69(C).
    4. Mariarosaria Comunale & Francesco Paolo Mongelli, 2021. "Tracking growth in the euro area subject to a dimensionality problem," Applied Economics, Taylor & Francis Journals, vol. 53(57), pages 6611-6625, December.
    5. Sami Ben Jabeur & Asma Sghaier, 2018. "The relationship between energy, pollution, economic growth and corruption: A Partial Least Squares Structural Equation Modeling (PLS-SEM) approach," Economics Bulletin, AccessEcon, vol. 38(4), pages 1927-1946.
    6. Mariarosaria Comunale & Francesco Paolo Mongelli, 2019. "Who did it? A European Detective Story. Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool," Bank of Lithuania Working Paper Series 70, Bank of Lithuania.
    7. Samargandi, Nahla & Kutan, Ali M. & Sohag, Kazi & Alqahtani, Faisal, 2020. "Equity market and money supply spillovers and economic growth in BRICS economies: A global vector autoregressive approach," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    8. Mariarosaria Comunale & Francesco Paolo Mongelli, 2019. "Euro Area Growth and European Institutional Reforms," Bank of Lithuania Occasional Paper Series 24, Bank of Lithuania.
    9. Philipp Heimberger, 2023. "Do Interest-growth Differentials Affect Fiscal Policy? Evidence for Advanced Economies," wiiw Working Papers 230, The Vienna Institute for International Economic Studies, wiiw.
    10. Considine, Jennifer & Galkin, Phillip & Hatipoglu, Emre & Aldayel, Abdullah, 2023. "The effects of a shock to critical minerals prices on the world oil price and inflation," Energy Economics, Elsevier, vol. 127(PB).
    11. Abdul Jalil, 2020. "Debt Sustainability: Economic Growth is the Panacea," PIDE Knowledge Brief 2020:19, Pakistan Institute of Development Economics.

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    More about this item

    Keywords

    Government debt; Economic growth; International transmission; Global vector autoregression;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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