Growth in a Time of Debt, Rogoff, Reinhart

Growth in a Time of Debt, Rogoff, Reinhart - NBER WORKING...

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NBER WORKING PAPER SERIES GROWTH IN A TIME OF DEBT Carmen M. Reinhart Kenneth S. Rogoff Working Paper 15639 http://www.nber.org/papers/w15639 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2010 This paper was prepared for the American Economic Review Papers and Proceedings. The authors would like to thank Olivier Jeanne and Vincent R. Reinhart for helpful comments and the National Science Foundation Grant No. 0849224 for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. © 2010 by Carmen M. Reinhart and Kenneth S. Rogoff. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
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Growth in a Time of Debt Carmen M. Reinhart and Kenneth S. Rogoff NBER Working Paper No. 15639 January 2010 JEL No. E2,E3,E6,F3,F4,N10 ABSTRACT We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases. Carmen M. Reinhart University of Maryland Department of Economics 4118D Tydings Hall College Park, MD 20742 and NBER creinhar@umd.edu Kenneth S. Rogoff Thomas D Cabot Professor of Public Policy Economics Department Harvard University Littauer Center 232 Cambridge, MA 02138-3001 and NBER krogoff@harvard.edu
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I. Introduction In this paper, we exploit a new multi-country historical data set on central government debt as well as more recent data on external (public and private) debt to search for a systematic relationship between debt levels, growth and inflation. 1
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Growth in a Time of Debt, Rogoff, Reinhart - NBER WORKING...

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